In India which of the following is are a mechanism of deficit financing 1 borrowing from RBI 2...........

Economic Affairs Public Finance and Debt Management

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In India, which of the following is/are a mechanism of deficit financing?

1. borrowing from RBI.

2. borrowing from commercial banks.

3. Issuing fresh currency notes.

Select the correct answer using the codes given below.

1 and 2 only

1 and 3 only

2 and 3 only

1, 2 and 3

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Explanation:

Statement 1 and 3 only is correct.

Deficit financing is a method of meeting government deficits through the creation of new money. The deficit is the gap caused by the excess of government expenditure over its receipts. Deficit financing in India is done by –
1. Withdrawal of past accumulated cash balances
2. Borrowing from RBI
3. Issuing fresh currency notes.
Borrowing from commercial banks is not a part of deficit financing.