In India, deficit financing is used for raising resources for
economic development
redemption of public debt
adjusting the balance of payments
reducing the foreign debt
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This question was previously asked in
UPSC IAS – 2013
Deficit financing refers to the practice where the government spends more than it receives in revenue, making up the difference by borrowing (from domestic or foreign sources) or, historically, by printing money (borrowing from the central bank). In developing economies like India, where tax revenues are often insufficient to fund large-scale infrastructure and development projects, deficit financing has been a common tool to mobilise resources needed for planned expenditure aimed at economic growth and development.