Page 1 :
Cyst ULueuE, , ee —, ademption of Public Debt, , redemption of public debt means repayment of debt. Public, pts 10-be repald by the government with the time fixed for its, fe jayment just as the private individual or organization has to repay, ihe loan There are different methods used bya government to redecm, ;s debt. Some methods are extreme ones such as repudiation of, jebt, while others may not be redeemed at all but payment of debt, «iththe help of floatinganother debt Various methods of redemption, of public debt which are commonly adopted are explained as follows:, , Repudiation of debt: It is the easiest way for the government, to get rid of the burden of payment of aloan. It means that the, government refuses to pay the interest as well as the principal. In, such cases, government does not recognize its obligation to pay the |, Igan. Ina normal case, government does not do so as it is obvious, ihat the government will shake its confidence among the people and, also in the eyes of other nations., , 2, Conversion of loans; Conversion of loans is another method, of redemption of publi It means that an old i !, into a new loan. Under this system, a high interest public debt is, , converted into a low interest public debt. Here the loan is not repaid, but the form of debt is changed. This lowers the burden of debt im
Page 2 :
os, , 114 \, , future. Conversion might be made ifthe government q, , funds to , ¢ ime of maturity, Convers Snot hay, speaking, is not a method of debt redemption because the : Sigh, debt is reduced, Further government should enjoy th Volum, 2, people to make them agree to convert the old loan intonn, Therefore, conversion isa voluntary process requiring the a Oa,, the bond holders. cap Ose, 3, Utilization of budgetary surplus: When the goverment, surplus in the budget, it must be utilized for paying the debt. gat, occurs when public revenue exceeds the public expenditure. st ly, method is rarely found. * Butthi,, , e faith ont, , 4. Terminal annuity: In this method, govemment pays offth, , debt on the basis of terminal annuity y into equal annual insta eel, including interest along with principal amount. This is the oie, “of paying off the public debt. With the passage of time bara: Way, debt goes on decreasing and at the time of maturity, most Fthe amy Of, is paid off. This method is almost similar to the sinking fund. a, , 5. Refunding: Refunding means the issue of new bonds and secur;, , by the government to repay the old maturing debts, Sometimesiy, government might find it difficult to repay a debt on the date of matuy; e, So it floats anew debt (by issuing new bonds and securities) to re ‘, the old debt. Usually short term debts are replaced by new long hi, debts. Similarly the government may pay the old debt with higher, , interest by borrowing a new Toan ata Tower interest., 4. There is only a subtle difference between refunding ang, -conversion. In refunding, the old debt is actually paid off by floating, , anew loan. Inconversion, there isa variation in the original terms of, the loans such as rate of interest, or other details., G. Compulsory reduction in rate of interest: Another method of, debt redemption is the compulsory reduction in rate of interest. During, the period of financial crisis, rate of interest is unilaterally reduced on, the basis of compulsion. This method is not possible to adopt in the, ordinary circumstances of the country., , % Additional provision of taxation: Generally, new taxes art
Page 3 :
115, , gto collect the revenue. These, , , , funds can be utilized, ¢~ gaswellasinterest. With this method redicrte eee PY, , # redistribution of income, i vpsil be made from tax Payers to bond holders., "4 year Wise partial repayment: This is a method by which, f ofdebt is repaid every year from the budget reven ero, ‘ ebtis paid off after some years, — See, , "inking fund: Sinking fund is considered the best systematic, ¥ 1 gnned method of redeeming public debt, The government, year for the repayment, , , , ** astes a. certain amount of revenue every, ite i, , * plic debt. Here there are two types: The first one is ‘Certain, ° jog Bund’ where a fixed sum of Money is deposited by the, , s, , *" emment eVeTy year for the repayment; The second is ‘Uncertain, , “kin Fund’ where the government allocates an amount whenever, lyst is inthe budget. _, , [fpublic debt was used for expenditure of productive enterprises,, } iiseasy to create a sinking fund by allocating a certain amount of, | eirprofits into the fund. Dalton is of the opinion that even if public, gebt is not used for productive enterprises, sinking fund should be, |) created out of current revenues of the government like taxation., , | 10.Capital levy: Capital levy isa heavy tax on property and certain, , Hh assets levied exclusively for the repayment of public debt. Itisone, , |] tmetay, that is, it is not be levied year after year.Capital assets, i] telowa certain value are exempted. Above this exempted value the, ‘| “pital levy can be collected ina progressive scale of the different, , sib of property values. The following arguments are put forward in, M &vour of capital levy:
