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Deficit financing - Money Market and Capital Market structure in India, Indian Economy Video Lecture | Indian Economy - B Com
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FAQs on Deficit financing - Money Market and Capital Market structure in India, Indian Economy Video Lecture - Indian Economy - B Com
| 1. What is deficit financing? |  |
Ans. Deficit financing refers to the practice of funding government expenditures through borrowing, particularly when there is a shortfall between government revenues and expenditures. It involves borrowing from various sources such as issuing government bonds, treasury bills, or taking loans from domestic or external sources to cover the deficit.
| 2. What is the structure of the Money Market in India? | |
Ans. The Money Market in India is a platform where short-term funds are traded. It comprises various instruments such as Treasury Bills, Commercial Papers, Certificates of Deposit, and Repurchase Agreements. The Reserve Bank of India (RBI) regulates and supervises the Money Market in India to ensure its smooth functioning.
| 3. What is the structure of the Capital Market in India? | |
Ans. The Capital Market in India is a platform where long-term funds are raised and invested. It consists of two segments - the primary market and the secondary market. The primary market facilitates the issuance of new securities through initial public offerings (IPOs) and rights issues. The secondary market, on the other hand, enables the trading of existing securities such as shares and debentures.
| 4. How does deficit financing impact the Indian economy? | |
Ans. Deficit financing can have both positive and negative impacts on the Indian economy. On the positive side, it allows the government to fund developmental projects, infrastructure investments, and welfare programs. This can stimulate economic growth, create employment opportunities, and improve living standards. However, excessive deficit financing can lead to inflation, increased interest rates, and a burden of debt on future generations.
| 5. What are the consequences of excessive deficit financing in India? | |
Ans. Excessive deficit financing in India can have several consequences. It can lead to inflation as the increased money supply exceeds the production capacity of the economy. This, in turn, erodes the purchasing power of individuals and reduces the value of savings. Additionally, excessive borrowing can lead to a higher interest burden, crowding out private investments, and increasing the cost of borrowing for businesses and individuals. It also poses a risk to fiscal stability and may result in a higher debt-to-GDP ratio, affecting the country's creditworthiness.
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