Simplified Laws Guide to Taxation and Legal Concern The way you and I have loans, the Government of India also has loans. The total loan (call it as ‘public debt) of the government is Rs.46,25,037 Crores as on March, 2014. Of the total loan, 91% is sourced within India (call it as Internal debt) and the balance is Overseas borrowings (call it as ‘external debt)
Why government has to borrow?
Simple. If your income is not sufficient to meet the expenses, what will you do? Same has been done by the government. The government’s Income is Rs.13,88,775 Crores, whereas they have commitments worth Rs.19,13,314 , which results in a shortfall of Rs.5,24,539 (the shortfall is popularly known as ‘fiscal deficit’). Obviously the shortfall has to be funded, isn’t it? So, they borrow!
Where do they borrow from?
- Domestic (means within India) : The government issues ‘dated securities’ treasury bills, bond. Reserve Bank of India is the banker of the Government (RBI). Any cash-flow problems of the Government are managed by RBI through issue of cash management bills, Way to Means Advances (WMA) facility. This constitutes around 91% of the total loan
- External (means foreign loans) The government takes loan from IMF, multilateral and bilateral debts, etc. This constitutes around 9% of the total loan.
Who is buying government bonds?
Commercial Banks, Insurance companies, mutual funds, co-operative banks, FIIs, Provident Fund, RBI and others (general public just 4% of total bonds)
When do they have to repay the loan?
The average maturity period of a Government loan is 10 years. Within one year, they have to pay around 5% of the total debt, likewise within 5 years they have to pay 26% of the debt. So, there is no immediate problem of repayment (Enjoy Government. Spend lavishly on non-planned expenditure. Who cares!). The loan repayment for the previous year is 163200 cr.
How much Rs.45,25,037 Crores means to you?
Each Indian has a loan of Rs.36,000 on his head. So, don’t say anywhere that you are ‘debt free’
