Name is BOND...... GORVERNMENT BOND

In order to understand Government Bond we need to understand fiscal deficit.

What is fiscal deficit?

Let us assume government wants to spend 100Rs. But government earns 98 Rs. through tax that we and corporates pay.

Thus government has 2 Rs less than it requires.

Thus government has fiscal deficit of 2% .

But why does Government needs extra money?

Government needs money to spend for following purposes

1. health-care
2. Education (schools etc)
3. Roads
4. Railways
5. Airports etc

All this public expenditure increases the Gross Domestic Product (GDP) of country. Read my following post for explanation.

http://isheconomist.blogspot.in/2015/10/how-does-government-infrastructure.html

From where does deficit is funded?
As government faces this fiscal deficit, government issues a bond.

Bond is nothing but a piece of paper that says ,"PLEASE GIVE ME SOME MONEY I WILL PAY YOU INTEREST"

WHO BUY THESE GOVERNMENT BONDS?
Following entities buy government bonds
1. People like you and me
2. Reserve bank of India
3. Foreign investors
4. Foreign governments
5. World Bank
6. IMF (International Monetary Fund) etc.

This government debt is funded through tax. And a common man pays this tax. That's why we call this debt as public debt.
If this debt is used for good purpose in order to create the asset, then GDP will increase and many jobs will be created.
But if it is used for various pongy schemes then it can create a problem. This is explained in my previous post as follows.
http://isheconomist.blogspot.in/2015/11/how-does-government-debt-affects-comman.html

If government takes loan at 3% interest rate and if economy grows at 6% then government can pay back this debt easily.


RECENT HAPPENINGS:
Recently Indian government has issued"RUPEE BONDS".

PM of India has urged Singapore investors in "INDIA-SINGAPORE ECONOMIC CONVENTION PROGRAMME" to buy these bonds so India can fund its infrastructure projects.


I hope this will certainly give boost to Indian economy.


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