Table of Contents
IN NEWS
- “India’s debt stands at Rs 88.18 lakh crore at the end of June 2019, according to the latest data on public debt.
- This is a 4% jump from the previous quarter i.e. a rise in debt by Rs 3.5-4 lakh crore.
- It is worrisome,” Congress.
WHAT IS NATIONAL DEBT OF INDIA?
- The national debt of India is the money owed by India’s federal government.
- The debts of India’s states and local government are not counted as part of the country’s national debt.
- According to the IMF, India’s debt to GDP ratio is around 68%.
- This is a comfortable figure because it is well below 100%.
- It leaves the country room to borrow more in the event of a financial crisis.
WHO IS RESPONSIBLE FOR RAISING DEBT?
- The Indian national debt is managed by the country’s central bank.
- The national debt is managed by a bank division, called the Public Debt Office (PDO).
HOW THE DEBT IS RAISED BY?
- The Reserve Bank of India raises debt for the Government of India through a range of instruments, which the RBI calls “G-Secs.”
- The instruments that the PDO issues fall into the following categories:-
WHO HOLDS INDIAN DEBT?
INDIA’S EXTERNAL DEBT
- India’s external debt increased 2.6% year-on-year at the end of fiscal year 2018-19.
- At the end of March 2019, India’s external debt was $543 billion, recording an increase of $13.7 billion year-on-year.
- The external debt-to-GDP ratio stood at 19.7% at end-March 2019.
WHY DON’T INDIAN GOVERNMENT REPAY THE DEBT BY PRINTING NEW CURRENCY?
- Currency notes are printed in India on the basis of Minimum Reserve System (MRS) since 1957.
- Accordingly, the RBI has to maintain assets of at least Rs.200 crore all the time. Rs.115 cr in the form of Gold and Rs.85 cr. in the form of foreign currency.
- Holding this asset of Rs. 200 cr. RBI can print any number of currency notes.
EXTERNAL DEBT IN WHICH CURRENCY?
- US dollar denominated debt is the largest component of India’s external debt-A share of 50.5% at end-March 2019, Rupee (35.7%) Japanese yen (5%) SDR (4.9%) Euro (3%)
- Thus India has to pay the external debt in same currency in which it has borrowed.
PRINTING EXCESS NOTES AFFECT THE ECONOMY
- It increases the supply of money in the economy, which leads to more inflation. (Great depression, Venezuela)
- Cost of printing.
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