Question

40. Consider the following statements with references to Deficit financing.
1. It is to finance excess expenditure with outside resources.
2. Fiscal deficit is the ideal indicator of deficit financing.
3. It cannot be an ideal for India as infrastructure development cost is growing high.
Which of the above statement(s) is/are incorrect?

• A. Only 1 and 2
• B. Only 2 and 3
• C. All of the above
• D. None of the above

Answer 1

The correct option is D None of the above

Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either printing of currency or through borrowing. Nowadays most governments both in the developed and developing world are having deficit budgets and these deficits are often financed through borrowing. Hence the fiscal deficit is the ideal indicator of deficit financing. In India, the size of fiscal deficit is the leading deficit indicator in the budget. It is estimated to be 3.9 % of the GDP (2015-16 budget estimates). Deficit financing is very useful in developing countries like India because of revenue scarcity and development expenditure needs.