Principle of self liquidating debt
Loans which the government promises to pay off at some future date are called redeemable debts. Under such loans, society is burdened with a perpetual debt, as tax-payers would have to pay heavily in the end.
It amounts to only a redistribution of income in the community from one section to the other.
When government borrows from people by using coercive methods, loans so raised are referred to as compulsory public debt.
Under the Compulsory Deposit Scheme in India, tax-payers have to compulsorily deposit a prescribed amount and defaulters are punished. Usually, public borrowings are voluntary in nature.
For brevity, the types of public debt are restated in Chart 1.
An internal loan may be voluntary or compulsory, but an external loan is normally voluntary in nature.
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An unproductive debt, on the other hand, is one which does not add to the productive assets of a country.