Q: In India, deficit financing is used for raising resources for
a) economic development
b) redemption of public debt
c) adjusting the balance of payments
d) reducing the foreign debt
Correct Answer: Option (a)
- Deficit financing refers to the difference between expenditure and receipts. In public finance, it means the govt. is spending more than what it is earning. Deficit financing is a necessary evil in a welfare state as the states often fail to generate tax revenue which is sufficient enough to take care of the expenditure of the state. The basic intention behind deficit financing is to provide the necessary impetus to economic growth by artificial means. Hence, option (a) is correct.
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