B.Com. - II Year PUBLIC FINANCE Unit – I Topic – Introduction To Public Finance Paper Code – C - 206 Content – Definition, Methods, Objectives, Causes, Uses and Evils of Deficit Financing 11/15/2018 Dr. Rekha Garg

LEARNING OBJECTIVES DEFICIT FINANCING DEFINITION METHODS OFDEFICIT FINANCING OBJECTIVES OF DEFICIT FINANCING CAUSES OF DEFICIT FINANCING USES OF DEFICIT FINANCING EVILS OF DEFICIT FINANCING 11/15/2018 Dr. Rekha Garg

Definitions of Deficit Financing Deficit financing is an important tool of financing government expenditure. It means filling the gap caused by the excess of government expenditure over its receipts through the creation of new money. “Deficit financing is the financing of deliberately created gap between public revenue and public expenditure or a budgetary deficit, the method of financing being of a type that results in an increase in the quality of money in the country.’ DR.V.K.R.V.Rao 11/15/2018 Dr. Rekha Garg

Methods Of Deficit Financing There are mainly three techniques of deficit financing- Borrowing from Central Banks. Withdraw of its cash balances from the Central Bank. Issuing New Currency, i.e., printing of more notes and putting into circulation. 11/15/2018 Dr. Rekha Garg

Objectives Of Deficit Financing The objectives of deficit financing is a method of meeting the financial needs of the government tends to resort in order to require a quick command of resources to meet the growing war expenses. It is an instrument of economic development level of output and employment. It is essential for financing the plans. 11/15/2018 Dr. Rekha Garg

Objectives Of Deficit Financing For mobilisation of surplus, idle and unutilised resources for promoting rapid economic growth in underdeveloped economies as well as in developing economies. To raise the level of effective demand and stimulate private investment. To divert undesirable and unproductive resources into desirable and productive channels of the economy. 11/15/2018 Dr. Rekha Garg

Causes Of Deficit Financing Non-development Expenditure. Sources for Development Activities. To Boost the Revenue. 11/15/2018 Dr. Rekha Garg

Uses of Deficit Financing It is used for the development of several projects,it creates funds. It boost up the demand of goods and services, which in turn leads to increase in production, income and employment. Deficit financing leads to inflation but also pushes forced saving . It is helpful in reducing Inequality. 11/15/2018 Dr. Rekha Garg

Evils Of Deficit Financing It leads to rise in Prices. It results in the creation of fresh purchasing power in the hands of the government which increases national expenditure. Rise in prices of essential commodities has an adverse impact on savings. It give rise to speculative activities. Unequal distribution of income and wealth. Political and social tension among different sections of the society. 11/15/2018 Dr. Rekha Garg

References Bird, Graham(1995), IMF Lending to Developing countries : Issues and Evidences, Routledge. Bell, Crive (2003) Development Policy as Public Finance, Oxford University Press. Gibson, Heather D. (1996), International Finance : Exchange rates and Financial Flaws in the International System, Longman. Basu Kaushik (1997),Analytical Development Economics : The Less Developed Economy Revisted, The MIT Press. 11/15/2018 Dr. Rekha Garg