Tackling the Growing Burden of Public Debt

This paper deals principally with some questions concerning the growing burden of internal public debt in India. These questions that have lately been raised with a stridency not noticed before focus on reducing the fiscal deficit, a term that hardly ever figured in the lexicon of fiscal policy in India, but which has all the same to be taken note of THERE is no gainsaying that public debt in India has grown rather rapidly in recent years. During the 80s the combined debt of the central and state governments grew at the rate of 18 per cent per annum as against the GDP growth rate of 14 per cent (both in current prices), with the result that the ratio of public debt to GDP which was already quite high,1 increased substantially, from 50 per cent in 1980-81 to 75 per cent in 1990-91.2 Thus an additional 2.5 per cent of GDP was added on to our public debt every year during the 80s. During this period both internal and external public debt increased rather fast, but the increase in internal public debt was faster. Between 1980-81 and 1990-91, the increase in the internal public debt was almost six times (5.84) as against that in the external public debt of almost five times (4.92).5 True, the magnitude and growth of a country's public external debt could legitimately cause concern. But the source of concern, namely, the pressure debt servicing creates for the balance of payments with respect to a country's public external debt, and that relating to the magnitude and growth of the overall external debt of a country are mostly the same. According to the estimates of a recent RBI task force, the total external debt of the country grew from Rs 19.5 thousand crore. in 1980-81 to Rs 123 thousand crore in 1990-91, i e, by 6.31 times, while its public debt component, as already noted, increased by 5.84 times, i e, at a somewhat slower pace.4 The non-public debt component of the country's external debt has, obviously, been rising even faster In 1980-81 the public debt component was as high as 70 per cent in the total external debt, but, it would have come down to 55 per cent by the end of the year 1992-93.