Government Borrowing

Borrowing by the government is anal her method by which the saving of the community may he mobilized, Hut there exist a number of staccatos which hinder the success (If borrowing policy ill an underdeveloped economy. In many such countries. there are no organized money and capital markets and in those where such markets exist, they constitute a very small segment of the total money market of tile country. There may not, besides, exist any organic relationship between the organized and the unorganized parts of tile money market. Moreover the resources of the organized capital market may be too inadequate to fulfill the needs both of the private and of the public sector, Further, in the capital market the competition for funds between the government and the private sector will raise the rate of interest and this will have a highly disincentive effect heather increase of investment in the private sector.

For the success of government’s borrowing policy. it is Cassatt y that financial institutions be developed and extended into the rural.sector of the known. This will inculcate the habit of thrift in the population and mobilize for productive purpose the amount of savings, originating in this sector, Besides. for the mobilization of savings, it will be necessary to check and regulate the diversion of savings into reproductive investment such as real estate and inventory accumulation. Suitable techniques of borrowing must also be devised, For example. bonds issued by the Government should be adjusted to the preferences of the general public. Bonds of large denomination and lung maturity may be offered to the institutional investors, whereas those of small denomination and short maturity may be reserved for the non-institutional investors. If properly devised and conducted, small savings campaign can mobilize a sizable amount of resources.

Fuhrer, the mobilization of the hoarded gold and cryptically through government prognosticates a highly desirable source of development finance Of course, suitable techniques of public borrowing for the fellatio these resources have to be evolved.