The Effects of Internal and External Debt on Economic Growth of India

Abstract

Among the sources of non-tax revenue, the major source of government revenue comes from public debt. In comparison to revenue collected, its expenditure is growing with the aim of achieving higher economic growth. To fulfil the gap between expenditure and revenue collected, it is giving rise to market borrowings. In case of India, Central Government’s public debt is about 40 percent of total GDP at the end of March, 2019. Within the total public debt, internal debt consists of 37.3 per cent of GDP and external debt is covering 2.7 percent of GDP. The issue of internal as well as external borrowing as a policy to promote economic growth create a serious debate among the economists. The paper tries to contribute few points to this debate. Firstly, the paper is trying to analyze the trend of internal and external debt of India over a period of time. Secondly, it is focusing on determination of the type of relation between internal debt and economic growth as well as between external debt and economic growth.