Question

Explain the following:

Productive debt and unproductive debt

Answer 1

Productive and unproductive debt:

A debt is called productive if the loan is financed for projects which bring revenue to the government; for example, irrigation and power projects. Productive debts are self-liquidating in nature; this means the principal amount and interest are normally paid out of the revenue generated from the projects for which the loans were used.
A debt is called unproductive if the loan is financed for war and other relief operations in case of emergencies. Unproductive public loans are a net burden on the community. The government will have to resort to additional taxation for their servicing and repayment.