ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Burden of external debt affecting production and resource allocation is termed as Indirect real and money burden. Indirect real burden-There is a rise in indirect taxes for debt repayment. This leads to pressure on workers and adversely affects their willingness to work and save.

Detailed explanation-2: -Domar holds that the burden of public debt should be defined as the ratio of total debt to the total national income i.e. total debt /total national income. If the total amount of national income remains constant and the total amount of public debt increases year after year, the burden of the debt would increase.

Detailed explanation-3: -Internal debt primarily occurs when the nation issues bonds to raise capital. External debt gets added when the country borrows from foreign entities, other governments, commercial banks, and international financial institutions. The external debt burden is a serious issue.

Detailed explanation-4: -External Public Debt and the Burden The foreign exchange has, therefore, to be earned through excess of exports over imports. This means that the amount of goods and services are lost from the nation. This will reduce the real income and, hence, will reduce its welfare. This is a real burden on the community.

Detailed explanation-5: -Yes, public debt imposes a burden in the following cases: (i) When the government has imposed new taxes or raised the existing tax rates to repay the debt. (ii) When public debt is taken for war purposes or debt is used in an unplanned manner.