In India deficit financing is usually resorted in order to Finance the revenue deficit component Und...........

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In India, deficit financing is usually resorted in order to

Finance the revenue deficit component
Undertake developmental expenditure
Bridge the short-term Current Account Deficit (CAD)

Select the correct answer using the codes below.

1 and 2 only

2 and 3 only

2 only

1 and 3 only

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Explanation:

Statement 1: In India, revenue deficit is one of the major reasons for a large fiscal deficit. This means that the government cannot finance its revenue operations by the resources it generates.

Statement 2: This is done because the internal resources of the government are not adequate to undertake development expenditure. It must borrow money from the market or abroad.

Statement 3: CAD is financed by external flows. If government borrows from outside it would increase our external capital deficit, but not affect the short-term CAD.