Deficit Financing is the phrase used to describe “the financing of a deliberately created gap between public revenue and public expenditure or a budgetary deficit, the method of financing resorted to being borrowing from the RBI.”
When the Government has to spend more than what it can raise through taxes, non-tax and other sources, it borrows from the market.It cannot borrow above a certain amount from the market as it may push up interest rates and crowd out private investment.Then it borrows from the RBI. In other words, when the resources from taxes, user charges, public sector enterprises, public borrowings, small ....
