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Public debt is the total amount, including total liabilities, borrowed by the government to meet its development budget. It has to be paid from the Consolidated Fund of India. The term is also used to refer to overall liabilities of central and state governments, but the Union government clearly distinguishes its debt liabilities from the states’.
The central government broadly classifies its liabilities into two categories — debt contracted against the Consolidated Fund of India, and public account.
Over the years, the Union government has followed a considered strategy to reduce its dependence on foreign loans in its overall loan mix. Internal debt constitutes over 93 per cent 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.
The sources of public debt are dated government securities (G-Secs), treasury bills, external assistance, and short-term borrowings.
According to the Reserve Bank of India Act, 1934, the RBI is both the banker and public debt manager for the government. The RBI handles all the money, remittances, foreign exchange and banking transactions. The Union government also deposits its cash balance with the RBI.
The Union government’s liabilities account for a little over 46 per cent of India’s gross domestic product (GDP). However, if the public debt is calculated as general government liabilities, which also includes the liabilities of states, this goes up to 68 per cent of the country’s GDP.