Causes for the Increase in Public debt: The causes for enormous growth of public debt may be studied under the following sub-headings: 

1. War and Preparation of war: Waging war has become one of the important causes for incurring debts by the governments. In modem times, the preparation for war and nuclear defence programmes take away the major share of the government’s revenue and so it incurs debt.

2. Social obligations: Modem states are considered to be ‘Welfare States and they have to undertake many social obligations like public health, sanitation, education,insurance, transport and communications, etc., besides providing the minimum necessaries of life to the citizens of the country. To finance these, the State has to incur a heavy public debt.

3. Economic Development and Deficit: The government has to undertake many projects for economic development of the country. Construction of railways, power projects, irrigation projects, heavy industries, etc., could be thought of only by means of mobilising resources in the form of public debt. Due to heavy public expenditure, the governments always face deficit budget. Such deficits have to be financed only through borrowings.

4. Employment: Most of the governments of modem days face the problem of unemployment and it has become the duty to solve this by making huge public expenditure. To solve the unemployment problem, and to fight recession, the government has to make huge expenditures. For this the States have to resort to public debt.

5. Controlling inflation: The Government can withdraw excess money from circulation, by raising public debt and thus prevent prices from rising.

6. Fighting depression: During the depression phase, private investment is lacking. The Government applies compensatory public spending by borrowing from internal and external sources.