Question

How the fiscal deficit of India is financed? What are it's provision? ​

Answer 1

Answer:

The fiscal deficit is financed by borrowing from the Reserve Bank which issues new money or currency against government securities, which leads to the expansion in money supply. In the old terminology, it was known as deficit financing in India.

Answer 2

Explanation:

Fiscal deficit of India is financed by borrowing from the Reserve Bank which issues new money or currency against government securities,which leads to the expanaion in money supply.

when there is an overall budget deficit of the Govt. ,it has to be financed by either borrowing from the market or from the Reserve Bank of India which is the nationalized central bank of the country.Thus,to finance it's fiscal deficit ,the Government may borrow from RBI against its own securities.

It is thus clear that fiscal deficit implies that government incurs more expenditure on goods and services than its normal receipts from taxes and non taxe revenue.

This excess expenditure by the government is financed by either borrowing from the market or by newly created money which leads to the rise in incomes of the people.

Major provisions of the FRBM Act,2003:

The FRBM rule set a target reduction of fiscal to 3% of the GDP by 2008- 09 .This will be realized with an annual reduction target of 0.3% of GDP per year by the Central Government.