Public Debt

The public debts have, almost in all countries, assumed an importance in their financial organization which makes their management a matter that calls for the exercise of skill, foresight, and understanding. They are incurred either to meet temporary or exceptional emergencies, and the expenditure involved in the public works of remunerative and non-remunerative character. Their effects on national life vary according to their objects, magnitude, terms of payment of interest and repayment of principal, and the class and the nationality of the public creditors. It is not necessary to analyse all their effects and point out the way in which they are related to one another. But it is important to remember that of all the problems which require careful handling on the part of financiers, the management of public debts is not the least important. The disturbing effects of public debts which various countries have accumulated during the war have become a matter of common knowledge, and it is admitted that without the settlement of this question it is not possible to find a satisfactory solution of the international difficulties. In India the position is a great deal better than in other countries, and the problem does not require immediate attention. The need of vigilant care, however, in watching the growth of public debts or providing safeguards against the measures which will ultimately recoil on the financial stability of the country is not less urgent on that account. The temptation of meeting the expenditure out of loans, which ought to be charged to the annual revenues, is always strong. In a country in which the taxable capacity of people is limited and the public needs, that are clamouring for satisfaction, numerous, every expenditure from loans is likely to appear in the light of investment, which promises rich return in the near future. If the money for education, public health, and various demands of national life is found out of borrowed funds, it will not strain the resources of the taxpayer, and give us services which are admitted to be necessary and beneficial. But if it becomes part of our accepted financial policy to defray the expenses of such activities from public loans, the door is opened for the use of devices which have everywhere led to financial disorganization. It is not suggested that on no account should the loans be used for the introduction of compulsory elementary education, improvement of sanitary conditions of the masses, or other schemes of the same kind. It may, under certain circumstances, be the only feasible course, and when the object of expenditure is one which cannot on account of its importance from the national standpoint, be put off, it may perhaps be also a desirable course. But it has to be remembered that use of loans for such purposes is attended with very grave risks, and the presumption against it is so strong as to require exceptional circumstances for its justification. It may be preferable to go a little slow in realizing these pre-eminently desirable ends rather than to adopt the path of least resistance. The unwarranted use of loans is also to be deprecated for another reason. The taxpayers and their representatives are a little less careful in the scrutiny of the proposals which do not touch their pockets immediately. The schemes which would not pass muster on closer examination are got through the Legislatures without much difficulty because they are not accompanied by proposals for fresh taxation. In this way all kinds of proposals of doubtful utility receive the sanction of the Legislatures which would, otherwise, have rightly been nipped in the bud. The consideration has special importance for a country in which the democratic control of public finances is just beginning and has not been established. The Executive Government can, by resorting to loans, evade the vigilance of the Legislatures, and smuggle through unnecessary or extravagant schemes of public expenditure. It has been considered necessary to emphasize the disadvantages of the use of loans because of the scant attention which they have received in the past. The summary way in which the demands for the grant of money for railway expenditure have been disposed of in the last four years by the Legislative Assembly is partly to be attributed to the public indifference to matters relating to public debts. In one province ¹⁵³ at least a loan has been floated for financing schemes which it may be assumed would not have been undertaken if the total or a part of outlay had to be met from the yield of taxes. The situation is not serious, and the mistakes that have been committed can be rectified. But it is necessary to bear its possibilities in mind. The motto that “the evil that men do, lives after them” is, as Dr. Dalton has pointed out, specially applicable to the public loans for purposes other than those for which they may or must be used. With this general consideration in mind, the study of the technical aspect of the management can now be undertaken.