Discuss different types of public debts .What are the implications of increasing public debt?

Answer: Public debt is classified in the following ways:

1. Internal and external – When the government borrows within the country, it is called internal debt. On the other hand when the government borrows from outside the country, it is called external debt.
2. Voluntary and compulsory – When the government borrows by issuing securities to which people are free to subscribe it is voluntary debt. When the government enforces borrowing through legal compulsion it is compulsory debt.
3. Productive and unproductive – When the debt is invested in a certain project that yields income to the government. Eg. borrowing for the capital goods industry. On the contrary, unproductive debt neither creates any asset nor yields any return on the investment. Eg. debt to cover fiscal deficit.
4. Funded and unfunded – Funded debt is the long-term debt. Unfunded debt is the short-term debt (less than one year)
5. Redeemable and irredeemable – When the government borrows with a promise to pay the debt on a future date it is redeemable
   debt.
   On the other hand, for the irredeemable debt the government borrows without any intention to pay it off. However, the government pays interest on the irredeemable debt. It is also known as perpetual debt.

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