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Debt Management in India, Power Point Presentation

Debt Management in India, Power Point Presentation

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Debt Management Debt Management Presentation Transcript

  •  Kiran Babu Sinto K A Syam Prasad Vishnu Menon Sreelatha S NairSOP 18, MBA 11-13 B
  • “ Public debt management is concerned withthe decisions of forms of public debt, in termsof which new bonds are sold, maturing debtsare redeemed or refunded, the proportion inwhich different forms of public debt should beissued, the pattern of maturities of debt andits ownership etc”- Prof. AbbosSOP 18, MBA 11-13 B
  •  Public Debt is the debt borrowed by governmentthrough various methods from the public R.B.I. Formed Internal Debt Management Cell inOctober 01, 1992 Formation of debt policy that seeks to achievecertain objectives & the implementation of sucha policy Methods adopted by the government throughthe processing of FLOATING, REFUNDING &REPAYMENT of public debt Management of public debt by Govt to avoidinflationary or deflationary effect on theeconomySOP 18, MBA 11-13 B
  • Manages:- The form of issue of public securities The form of refund of public debt The proportion of different types of debt to beissued The pattern & structure of interest rate onsecurities Authoritative decision making in public debtSOP 18, MBA 11-13 B
  •  Increase or decrease of public debt has effecton the working of any economy Public debt influences the formation of theeconomic policy of the country Utilization of public debt will foster or hamperthe changes in economic development Necessary to know the conditions which areessential for the implementation of planningpolicies Gives knowledge about the actual amountrequired for a certain policySOP 18, MBA 11-13 B
  •  To maintain government‟s economic policy:-Helps to raise the purchasing power andeffective demand in depression period & vice-versa during inflation Providing sufficient funds to economy duringwar period. To strengthen the money market of thecountry Beneficial for the activities of government Should not have any adverse effect on theeconomic condition of the country.SOP 18, MBA 11-13 B
  • According to Philip E Taylor, three generalprinciples of debt management can be identifiedas:a. The policies pursued must be able to extractfrom the public without undue coercion.b. The extraction of loanable funds from themarket and its repayment when it isinconvenient to do so.c. It should be so placed as to minimize the needto enter the market when it is inconvenient todo so.SOP 18, MBA 11-13 B
  •  Minimum interest cost of servicing public debt. Satisfaction of the investors. Funding the short term debt into long termdebt. Public debt must be in co-ordination withfiscal and monetary policies. Proper adjustment of maturitySOP 18, MBA 11-13 B
  •  Low interest obligation. Preference pattern of investors. Optimal maturity structure. Monetization of debt. Maintenance of interest rate Anti- cyclical use of debtSOP 18, MBA 11-13 B
  •  Productive debt & Unproductive debt Voluntary debt & Compulsory debt Internal debt & External debt Short term debt, Medium term debt & Longterm debt Redeemable debt & Irredeemable debt Funded debts and Unfunded debtsSOP 18, MBA 11-13 B
  •  Public debt when raised productive purposesand used to add the productive capacity of theeconomy Public debts which are fully covered by assetsof equal or greater value. Self liquidating in nature Provides a continuous flow of income to Govt. The interest and principal amount is generallypaid out of income earned by the governmentfrom the production projectsE.g. Railway projects, Irrigation projects, Powergeneration Projects etcSOP 18, MBA 11-13 B
  •  Public debt which do not add to theproductive capacity of the economy Public debt used for war, famine relief, socialservices, etc. is considered as unproductivedebt Not necessarily self liquidating Burden to the government Repaid generally through additional taxes.SOP 18, MBA 11-13 B
  •  Loans are provided by the members of thepublic on voluntary basis Voluntary in nature Obtained in the form of market loans, bonds,etc. The Government makes an announcement inthe media to obtain such loans The rate of interest is normally higher thanthat of compulsory debt, in order to induce thepeople to provide loans to the government.SOP 18, MBA 11-13 B
  •  Rare phenomenon in modern public finance Raised in special situations like war or crisis Public are compelled to give debt The rate of interest on such loans may be low These loans are similar to tax, the onlydifference is that loans are rapid but tax is not. E.g. Compulsory deposit scheme In IndiaSOP 18, MBA 11-13 B
  •  Funds borrowed by the government from varioussources within the country. Include individuals, banks, business firms, andothers. Instrument include market loans, bonds, treasurybills, ways and means advances, etc. Repayable only in domestic currency It imply a redistribution of income and wealthwithin the country & therefore it has no directmoney burden. The internal debt of the Central Government ofIndia has increased from Rs.1.54 lakh crore inSOP 18, MBA 11-13 B
  •  Debts raised from foreign countries orinternational institutions Debts repayable in foreign currencies Voluntary in nature It involves transfer of resources from foreigncountries to the domestic country Repayment of interest and principal amountthrough transfer of resources takes place in thereverse direction. Help to take up various developmentalprogrammes in developing andunderdeveloped countriesSOP 18, MBA 11-13 B
  • SOP 18, MBA 11-13 B
  •  Short term debt matures within a duration of 3to 9 months Low rate of interest E.g. Treasury bills with maturity period of 91days and 181 daysSOP 18, MBA 11-13 B
  •  Maturity period of above one year and up to 5years Borrow for medium term needs, development& non development activities E.g. Different types of market loansSOP 18, MBA 11-13 B
  •  Maturity period of 10 years and above High rate of interest Raised for developmental programmes and tomeet other long term needs of publicauthorities.SOP 18, MBA 11-13 B
  •  Repayable only after a long period of time of 30years or more Funded debt has an obligation to pay fixed sumof interest subject to an option to thegovernment to repay the principal The government may repay it even before thematurity if market conditions are favorable. Undertaken for meeting more permanent needs,like building up economic & industrialinfrastructure Establishes a separate fund for repayingSOP 18, MBA 11-13 B
  •  Debts which are incurred to meet temporaryneeds of the government Maturity period less than one year Unfunded debt has an obligation to pay at duedate with interest. Generally low rate of interestSOP 18, MBA 11-13 B
  •  Government promises to pay off these debt atsome future date It can be redeemed and have a maturityperiod The government has to make arrangement torepay the principal & the interest on the duedate.SOP 18, MBA 11-13 B
  •  Debts with no maturity period Govt. may pay interest regularly, but norepayment date of the principle amount isfixed It is also a perpetual debt Usually government does not resort to suchborrowingsSOP 18, MBA 11-13 B
  • SOP 18, MBA 11-13 B
  • SOP 18, MBA 11-13 B
  • SOP 18, MBA 11-13 B
  • TWO CONCEPTS: PAY AS YOU USE FINANCE PAY AS YOU GO FINANCESOP 18, MBA 11-13 B
  • • SATISFACTION OF SOCIAL WANTS ANDFUTURE BENEFITS• COST PAYMENTS ARE MADE OVER THEYEARS• CAPITAL OUTLAYS FOR CONTINUOUS ANDDISCONTINUOUS PROJECTS• RELEASE OF RESOURCES MAY BE EITHERFROM PRESENT CONSUMPTION OR FROMCAPITAL FORMATION• LOAN FINANCESOP 18, MBA 11-13 B
  •  CURRENT BUDGET AND CAPI TAL BUDGETACCOUNTS CURRENT BUDGET – TAX FI NANCED CAPI TAL BUDGET – LOAN FI NANCEDSOP 18, MBA 11-13 B
  • CURRENTBUDGETCAPITALBUDGETRECEIPTS EXPENDITURES RECEIPTS EXPENDITUREa) TAXESb) OTHERSa)Expenditure forcurrent benefitsb)Interest amounta)Sale of assetb)Net borrowingsa)Expenditure forfuture benefitsb)Net increase inprovision forfuture benefitsc)Other currentexpendituresc)Net increase inprovisions forfuture benefitsSOP 18, MBA 11-13 B
  •  CONTRIBUTORY AND QUID PRO BASIS PROHIBITS BORROWING FOCUSSES ON LIMITING CURRENTEXPENDITURES TO CURRENTRECEIPTS OBSERVED AS AN IDEAL FISCALPOLICY BY LOCAL GOVERNMENTSSOP 18, MBA 11-13 B
  •  SECURING A SATISFACTION COORDINATIONBETWEEN TREASURY’S DEBT MANAGEMENTAND CENTRAL BANK’S MONETARY POLICY THREE APPROACHES:*POSITIVE MANAGEMENT*NEUTRAL MANAGEMENT*NEGATIVE MANAGEMENTSOP 18, MBA 11-13 B
  •  ACCORDING TO THIS CONCEPT: DEBT MANAGEMENT POLICY CREATESSTABILISING OR DESTABILISING EFFECT PUTS RESTRAINT ON ADDITIONAL CREDIT LONG TERM OBLIGATIONS ARE CHANGED INTOSHORT TERM BILLS DURING BOOM PERIODS, INTEREST RATES RISEAND GOVT. IS REQUIRED TO ENTER THE LONGTERM MARKET.SOP 18, MBA 11-13 B
  •  DOES’NT PROMOTE STABILISATION THROUGHDEBT MANAGEMENT STABILISATION IS LEFT TO CENTRAL BANKAND DEBT MANAGEMENT BY TREASURYREMAINS NEUTRAL DIFFICULT FOR THE GOVT. TO FOLLOWNEUTRALITY DEBT TO BE MAINTAINED IN THE FORM THATEXISTS CURRENTLYSOP 18, MBA 11-13 B
  •  MINIMISING INTEREST COST ONNATIONAL DEBT TAKES ADVANTAGE OF MARKETCONDITIONS ENTERS LONG TERM MARKET DURINGTHE TIME OF RECESSION UNDESIRABLE FROM ALL POINTS OFVIEWSOP 18, MBA 11-13 B
  •  MINIMUM INTEREST COST PRINCIPLE –Not adequate GOVERNMENT CONTROL OVER MONEYSUPPLY DEBT MONETISATION Lengthening the debtSOP 18, MBA 11-13 B
  •  Debt managers understand a clearunderstanding of macro-economicdevelopments Frames fiscal and monetary policy Imf- 1/5th of the developing countries wereexplicitly managing their debt systematicallySOP 18, MBA 11-13 B
  •  Extent of govt. regulation of foreign debt Appropriate composition of debtSOP 18, MBA 11-13 B
  •  In most countries, public sector itself is thelargest borrower Prices of goods produced by privatecompanies may be destroyed by Govt.policies„Amount of public debt depends on the growthrate of the economy and its exportperformance of the country‟SOP 18, MBA 11-13 B
  • SOP 18, MBA 11-13 B
  • SOP 18, MBA 11-13 B