The Solutions To Manage Public Debt In India ↓
The increase in Public debt puts a burden on the citizens of the country. The burden of public debt adversely affect the growth and development of the economy. Therefore there is a need to effectively manage public debt.
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Management of public debt involves; repayment of public debt, controlling the amount of borrowings and productive use of borrowed funds for development.
Following are the measures to be undertaken to reduce & repay public debt.
1. Reduction in Primary Deficit
Corrective action with respect to the growing internal debt must be carried out in two stages. In the first stage, action must be directed toward slowing down the pace of growth of the debt ratio or reducing it to a reasonable level. In the second stage, attempts must be made to contain most revenue expenditures within the revenues raised by the Government so that Government's net borrowing is used only for productive purposes.
2. Reduction in Growth of current expenditure
In order to reduce primary deficit, emphasis has to be placed more on reducing the growth of current expenditure of the Government than on raising the rate of growth of revenues.
According to R.J. Chelliah the kind of changes in expenditure policy that have to be brought about are as follows :-
- Reduction in the government's consumption expenditure for its staff.
- Reduction in subsidies.
- Reduction in capital assistance and subsidy to public enterprises.
- Liquidation of public debt.
- Reduction in government civilian employment.
3. Raising efficiency of borrowing Prog. of Central Govt.
The RBI has played a major role in improving the efficiency of borrowing programmes of the Central Government. Since 1992, the RBI has been raising Central Government debts at market related rates. From 1997, a new system of ways and means advances to meet the temporary mismatches of the central government finances replaced the earlier system of ad hoc treasury bills. While deciding to issue a loan, RBI takes into account the cash needs of the government, the liquidity conditions in the market and primary and secondary market yields. All this has helped in making the borrowing programme more market oriented.
4. Reforms in Debt Management of States
While several reforms in debt management policy have been introduced in the respect of sale of central government securities, sale of state government loans continue to be on old pattern and procedures. Under the present system, there is no scope for better managed states to access funds at competitive rates of interest. Hence, it is necessary to bring flexibility in the borrowing programs of the state governments with the help of RBI initiatives.
5. Foreign institutional investors and Public debt
Foreign Institutional Investors have been permitted to invest in government debt. In respect of government debt, they are permitted to invest only in dated government securities.
6. Consolidated Sinking Fund (CSF)
It is argued that there is an urgent need to create a Consolidated Sinking Fund. The CSF has the objective of breaking the vicious cycle of rise in repayment, burden of public debt. Even the State Government should set up such a fund in view of problem of repayment of loan.
7. Improving the state of debt market
Since 1997, the RBI has taken various measures to widen and deepen the debt market in India. These measures include uniform price auction of 91 days treasury bills, undertaking repos in non-government debt instruments, sale of capital index bonds, etc.
8. Disinvestment Policy
The government should disinvest public sector units, especially, those which are not strategic, especially the sick ones. Disinvestment will enable the government to raise funds, which can be utilized to repay a part of the public debt.
9. Proper Monitoring of Expenditure
The Government should make effort, to monitor the use of funds. The wastage of funds should be monitored by Government Authorities.