Government market borrowings, loans and grants
There are two types of borrowings :
- Internal borrowings
- External borrowings
There is third mean of public loan i.e. other liabilities
Internal debt or domestic debt is the part of the total government debt in a country that is owed to lenders within the country. Internal debt’s complement is external debt. Commercial banks, other financial institutions etc. constitute the sources of funds for the internal debts.
Internal public debt owed by a government (money a government borrows from its citizens) is part of the country’s national debt. It is a form of fiat creation of money, in which the government obtains finance not by creating it de novo, but by borrowing it. The money created is in the form of treasury securities or securities borrowed from the central bank.
External debt is the portion of a country’s debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made. In order to earn the needed currency, the borrowing country may sell and export goods to the lender’s country.
A debt crisis can occur if a country with a weak economy is not able to repay external debt due to the inability to produce and sell goods and make a profitable return. The International Monetary Fund (IMF) is one of the agencies that keep track of the country’s external debt. The World Bank publishes a quarterly report on external debt statistics.
If a nation is unable or refuses to repay its external debt, it is said to be in sovereign default. This can lead to the lenders withholding future releases of assets that might be needed by the borrowing nation. Such instances can have a rolling effect, wherein the borrower’s currency collapses and that nation’s overall economic growth is stalled.
External debt, particularly tied loans, might be set for specific purposes that are defined by the borrower and lender. Such financial aid could be used to address humanitarian or disaster needs. For example, if a nation faces severe famine and cannot secure emergency food through its own resources, it might use external debt to procure food from the nation it received the tied loan from. If a country needs to build up its energy infrastructure it might leverage external debt as part of an agreement to buy resources such as the material to construct power plants in underserved areas.
Multilateral debt is the money India owes to international financial institutions such as the Asian Development Bank (ADB), the International Development Association (IDA), the International Bank for Reconstruction and Development (IBRD), the International Fund for Agricultural Development (IFAD) and others. Borrowing from the International Monetary Fund (IMF) are not included under multilateral debt, and are instead classified separately under the IMF head. As on 31 December 2017, India had a total multilateral debt of $56,021 million. The country’s major creditors are the IDA (53%), ADB (25.3%), and IBRD (20.4%). The IFAD and a few other multilateral creditors hold the remaining portion of the multilateral debt.
Bilateral debt is the money India owes to foreign governments. As on 31 December 2017, India had a total bilateral debt of $ 23,371 million. About 79.7% of the total bilateral debt is owed to Japan. Germany (10.9%), Russia (5.3%), France (3.3%), and the United States (0.7%) are other major creditors of India. The remaining 3.1% is owed to various other governments.
It includes other interest bearing obligations of the government such as:
- Post office savings deposits under small saving schemes, loans raised through post office cash certificates, etc.
- provident funds,
- interest bearing reserve funds of departments like railways and telecommunications, etc.
The obligations of ‘other liabilities’ are met by the Public Account, just as the internal and external debts are secured under the Consolidated Fund. ‘
In 2017 India public debt was 1,896,129 million dollars, has increased 43,009 million since 2016. This amount means that the debt in 2018 reached 69.79% of India GDP, a 0.05 percentage point fall from 2017, when it was 69.84% of GDP.
India per capita debt in 2018 was 1,416 dollars per inhabitant. In 2017 it was 1,384 dollars, afterwards rising by 32 dollars, and if we again check 2008 we can see that then the debt per person was 781 dollars . The position of India, as compared with the rest of the world, has improved in 2018 in terms of GDP percentage. Currently it is country number 139 in the list of debt to GDP and 69 in debt per capita, out of the 186.