Question

Answer the following question.
Explain four ways of Redemption of Public Debt.

Answer 1

(1) Sinking Fund Approach: The Government at the regular interval saves a certain amount of money from its budget to meet up the debt obligations and uses this fund for the same when they have accumulated enough money.

(2) Conversion Approach: Conversion of loans is another method of redemption of public debt. It means that an old loan is converted into a new loan. Under this system, 111 high-interest public debt is converted into a low-interest public debt. Prof. Dalton felt that debt conversion actually relaxes the debt burden.

(3) Utilization of Budgetary Surplus: When the Government earns surplus in the budget, it must be utilized for paying the debt. A surplus occurs when public revenue exceeds public expenditure. However, this method is rarely found.

(4) Terminal Annuity: In this method. The government pays off the public debt on a fee basis of a terminal annuity into equal annual installments including interest along with the principal amount. This is the easiest way of paying off the public debt.