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In India, deficit financing is used for raising resources for

June 1, 2025 by rawan239

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

This question was previously asked in

UPSC IAS – 2013

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In India, deficit financing is primarily used for raising resources for economic development.

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.

While deficit financing can lead to inflation if not managed properly, it has been used as a means to stimulate investment and growth, particularly in the early stages of development planning. Options B, C, and D are not the primary reasons for employing deficit financing; in fact, deficit financing can sometimes complicate balance of payments (if funded externally) or increase public/foreign debt.

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