Deficit financing is when a government finances its budgetary deficit through borrowing or increasing the money supply. In India it refers to expenditures exceeding current revenues, with public borrowing to cover the difference. The main types of deficits are the budget, revenue, fiscal, and primary deficits. Fiscal deficits in India have increased substantially over time, from 23 billion rupees in 1974-75 to over 5 trillion rupees in 2012-13. Deficit financing can be used to remedy economic issues but comes with adverse effects like inflation, reduced savings and investment, and higher production costs.

2. • Meaning :
Deficit financing is defined as financing the
budgetary deficit through public loans and
creation of new money. Deficit financing in
India means the expenditure which in excess
of current revenue and public borrowing.

3. Various indicators of deficit in the
budget are
1. Budget deficit = total expenditure – total receipts
2 Revenue deficit = revenue expenditure – revenue receipts
1286109-935685=350424 cr.rs.
3 Fiscal Deficit = total expenditure – total receipts except
borrowings
1490925-977335=513590 cr.rs.
4 Primary Deficit = Fiscal deficit- interest payments
• 513590-319759=193831 cr.rs.

4. Fiscal deficit in india
• 1974-75 23 billion rupees
• 1990-91 425 billion rupees
• 2012-13 5135 billion rupees

5. Sources of deficit financing
• 1. By running down its accumulated cash
reserve from RBI.
2. Issue of new currency by government it self.
3. Borrowing from reserve bank of India and
RBI gives the loans by printing more currency
notes.

6. Objectives of deficit financing :
• 1. To finance war
• 2. Remedy for depression
• 3. Economic development:
• 4. Mobilization of Resources
• 5. For granting subsidies
• 6. Increase in aggregate demand :-
• 7. For payment of interest

7. ADVERSE EFFECTS OF DEFICIT
FINANCING
• 1. Leads to inflation :
• 2. Adverse effect on saving
• 3. Adverse effect on Investment
• 4. Inequality
• 5. Problem of balance of payment
• 6. Increase in the cost of production
• 7. Change in the pattern of investment: