Question

The outstanding internal and external debt and other liabilities of the Government of India at the end of 2025-2026 is estimated to be ₹ 196,78,772.68 crores.”

In this context, explain any four ways that can be adopted by the government to repay its liabilities.

Answer 1

1. Budgetary surplus: Run fiscally conservative budgets so that annual surpluses are used to buy back government securities or directly retire debt. This liquidates outstanding liabilities rather than rolling them over, but requires either higher revenue or lower spending.
2. Sinking fund: Set up a dedicated fund into which the government makes regular contributions; the fund is invested and then used to repay principal and interest as loans mature. This smooths repayment over time and reduces rollover risk.
3. Debt conversion/refunding: Convert existing high‑cost debt into new lower‑interest instruments (debt conversion) or issue new bonds to retire maturing bonds (refunding). Conversion lowers the interest burden; refunding postpones cash outflows but does not reduce total obligations.
4. Generate export surplus (for external debt): Promote exports or channel foreign loans into export‑oriented projects so foreign‑exchange earnings are available to service and repay external liabilities. This is a practical route for external‑debt repayment but depends on competitiveness and trade policy.