Question

What is meant by ‘Deficit Financing’?

Answer 1

Deficit financing means financing the budgetary deficit through public loans and creation of new money. It is the expenditure which is in excess of current revenue and public borrowing. The government may cover the deficit by running down its accumulated cash reserve from the Reserve Bank of India (RBI), borrow from RBI and RBI provides loans by printing more currency, and the government itself issues new currency.