Govt debt rises 1% to Rs 147 lakh crore in Q2

Govt debt rises 1% to Rs 147 lakh crore in Q2

Subject : Economy

Context:

The total liabilities of the government increased to Rs 147.19 lakh crore at September-end from Rs 145.72 lakh crore at the end of June this fiscal year.

Details:

• It reflects a quarter-on-quarter increase of 1 per cent in the second quarter of 2022-23.
• According to the quarterly report on public debt management released by the finance ministry public debt accounted for 89.1 per cent of total gross liabilities in September-end, up from 88.3 per cent as on June 30.
• Government raised Rs 4,06,000 crore through dated securities and not raise any amount through Cash Management Bills.
• The Reserve Bank did not conduct Open Market Operations for government securities
• The net daily average liquidity absorption by RBI under Liquidity Adjustment Facility (LAF) including Marginal Standing Facility and Special Liquidity Facility
• USD 532.66 billion as on September 30, 2022
• Between July 1, 2022 and September 30, 2022, the rupee depreciated by 3.11 per cent.
• The yields on government securities in secondary market hardened in short-end curve due to near-term inflation and liquidity concern though softening of yield was observed for the longer tenure securities during the second quarter, it said.
• Monetary Policy Committee decided to hike the policy repo rate by 100 bps, i.e., from 4.90 per cent to 5.90 per cent during Q2 largely with an intention to contain inflation
• The ownership pattern of central government securities indicates that share of commercial banks stood at 38.3 per cent at September-end 2022 as against 38.04 per cent on June 30, it said.
• With regard to foreign exchange reserves, the report said, it stood at USD 532.66 billion as on September 30, 2022, moderated from USD 638.64 billion on September 24, 2021.
• Between July 1, 2022 and September 30, 2022, the rupee depreciated by 3.11 per cent. The value of rupee against the dollar as on July 1 stood at 79.09 as against 81.55 on September 30

What is Public Debt?

• In the Indian context, public debt includes the total liabilities of the Union government that have to be paid from the Consolidated Fund of India.
  • Sometimes, the term is also used to refer to the overall liabilities of the central and state governments.
  • However, the Union government clearly distinguishes its debt liabilities from those of the states.
    • It calls overall liabilities of both the Union government and states as General Government Debt (GGD) or Consolidated General Government Debt.
  • Union government relies heavily on market borrowing to meet its operational and developmental expenditure. The study of public debt involves the study of various factors such as debt-to-GDP ratio, and sustainability and sources of government debt.
  • The fact that almost a fourth of the government expenditure goes into interest payment explains the magnitude of the liabilities of the Union government.

What are the types of Public Debt?

• The Union government broadly classifies its liabilities into two broad categories.
• The debt contracted against the Consolidated Fund of India is defined as public debt and includes all other funds received outside Consolidated Fund of India under Article 266 (2) of the Constitution, where the government merely acts as a banker or custodian.
• The second type of liabilities is called public account.

Internal Public Debt versus External Public Debt

• Over the years, the Union government has followed a considered strategy to reduce its dependence on foreign loans in its overall loan mix.
• External loans are not market loans. They have been raised from institutional creditors at concessional rates. Most of these external loans are fixed-rate loans, free from interest rate or currency volatility.
• Internal debt constitutes more than 93% of the overall public debt.
  • Internal loans that make up for the bulk of public debt are further divided into two broad categories – marketable and non-marketable debt.
    • Dated government securities (G-Secs) and treasury bills (T-bills) are issued through auctions and fall in the category of marketable debt.
    • Intermediate treasury bills (with a maturity period of 14 days) issued to state governments and public sector banks, special securities issued to National Small Savings Fund (NSSF) are classified as non-marketable debt.

Sources of Public Debt

• Dated government securities or G-secs.
• Treasury Bills or T-bills
• External Assistance
• Short term borrowings
• Public Debt definition by Union Government

The Union government describes those of its liabilities as public debt, which are contracted against the Consolidated Fund of India. This is as per Article 292 of the Constitution.

Public Debt Management in India

• As per Reserve Bank of India Act of 1934, the Reserve Bank is both the banker and public debt manager for the Union government.
• The RBI handles all the money, remittances, foreign exchange and banking transactions on behalf of the Government.
• The Union government also deposits its cash balance with the RBI.

Public Debt versus Private Debt

• Public Debt is the money owed by the Union government, while private debt comprises of all the loans raised by private companies, corporate sector and individuals such as home loans, auto loans, personal loans.

What is Debt-to-GDP ratio?

• The debt-to-GDP ratio indicates how likely the country can pay off its debt. Investors often look at the debt-to-GDP metric to assess the government’s ability of finance its debt. Higher debt-to-GDP ratios have fuelled economic crises worldwide.
• The NK Singh Committee on FRBM had envisaged a debt-to-GDP ratio of 40 per cent for the central government and 20 per cent for states aiming for a total of 60 per cent general government debt-to-GDP.

Suggested measures to make public debt sustainable –

• Privatisation of loss-makingPSUs
• Prudential stance as per the Fiscal Responsibility Budget Management (FRBM) Act 2003
• Leveraging ofPublic Financial Management System (PFMS)
• PPP model in social schemes
• Investment in infrastructure
• Harmonisation of tax regime
• Thrust on renewable energy