Public finance — definition of deficit financing: What does “deficit financing” imply in the context of government budgets? Focus on how expenditure in excess of revenue is financed. Choose the correct description.

Given data

• We must define the term deficit financing.

Concept / ApproachDeficit financing refers to financing a budget deficit by monetization—i.e., borrowing from the central bank (RBI) that creates new base money. In many textbooks on Indian public finance, this is distinguished from market borrowing as it directly expands money supply.

Step-by-step reasoningIf expenditure > revenue → a gap (deficit) arises.Financing that gap by central bank credit (ad hoc treasury bills/ways & means advances in legacy frameworks) injects new money, hence termed deficit financing.

Why other options are incorrectBalancing the budget (B) or covering fully by taxes (C) precludes any deficit; commercial-bank-only borrowing (D) does not necessarily constitute monetization.

Final AnswerDeficit financing implies meeting the shortfall by borrowing from the central bank with money creation.