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Public Finance Managing Public Debt

Flow of the Presentation

Introduction Causes for Public borrowing Types of Debt Methods of Public debt Redemption Role of the Various Agencies managing public debt Recent Scenario of public debt Solution to managing the public debt

Introduction

Public Finance is important source of the income for government

Public finance is the key to study government stabilization policies

In this world nothing can be said to be certain, except Death & Tax

Causes for Public Borrowing

Build up infrastructure like roads, railways, bridges, power plants

Government lending significant amounts of capital funds to the private sector for investment in planned development projects

Resorted to for meeting temporary as well as long term deficits.

Internal Debt
1. Market Loan The maturity period of 12 months or more. 2. Bonds

National Rural Development Bonds(NRDB) and Central Investment Bonds. Maturity 3 to 10 years. 3. Treasury Bills Purchased by commercial banks and others. Period of 91 day and 364 day. 4. Special Floating and Other Loans.

6 5. Special securities issued by RBI. Loans for a period of maximum 12 months from RBI. 6. Ways and Mean Advances. Loans for a period of three months from RBI.

7. Securities against small savings.

Since 1999-2000, under the new accounting system, national small savings have been converted into the Central Government securities

External Debt
A. Long term debt
World bank, International Monetary fund, AsianDevelopment Bank(ADB) B. Short term debt

Methods of Public Debt Redemption

Refunding Conversion Surplus Budget Sinking fund Terminal Additional Taxes Capital levy Surplus balance of payments

Role of various agency in public debt management

RBI Finance Ministry Public Debt Management Agency

Role of RBI in Public Debt Management

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Improving Efficiency of the economy and overall growth To use public policy instruments to improve equity RBI is the largest single holder of central government securities Prevent the government from borrowing from other sources at a higher rate of interest. Impose credit control on time to time Keep the SLR, CRR ratios at reasonable level. Regulates the banking structure through imposition of liquidity restrictions regarding credit supply.

Role of Public Debt Management Agency

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Management and execution of the borrowing program

Management of the debt portfolio Reporting to the Ministry of Finance on the development of the public debt and submitting proposals in connection with debt management policy and debt structure

Providing financial advice

Role of the Finance ministry in Public Debt Management

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Determining the specific borrowing instruments Designing the medium-term public debt management strategy within which the daily management public debt portfolio and its risk will be managed. Negotiates the loan agreements, agreements related to the transactions on derivative products and other related documents Collaboration with other relevant Agencies, collects, processes on borrowing and public debt operations

Recent Scenario
Years 2005 2006 2007 2008 2009 2010 2011

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Public debt (in % GDP) 59.7 53.8 52.8 61.3 57.3 55.9 48.5

Recent Scenario of Public Debt

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Managing Public Debt

1.Reduction in Primary Deficit

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2. Reduction in Growth of current expenditure

Reduction in the government's consumption expenditure

for its staff.

Reduction in subsidies.

Liquidation of public debt.

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3. Raising efficiency of borrowing Programs of Central Govt.

The RBI has played a major role in improving the efficiency of borrowing programmers of the Central Government
state government loans continue to be on old pattern and procedures Foreign Institutional Investors have been permitted to invest in government debt.

4. Reforms in Debt Management of States

5. Foreign institutional investors and Public debt

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6. Consolidated Sinking Fund (CSF)

The CSF has the objective of breaking the vicious cycle of rise in repayment, burden of public debt

7. Improving the state of debt market 8. Disinvestment Policy

Disinvestment will enable the government to raise funds, which can be utilized to repay a part of the public debt

9.Proper Monitoring of Expenditure

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Thank you