The fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing). Fiscal deficit in layman’s terms corresponds to the borrowings and liabilities of the government. The fiscal deficit can be financed by borrowing from the Reserve Bank of India (which is also called deficit financing or money creation) and market borrowing (from the money market, that is mainly from banks). But uncontrolled borrowing is not good for the economy, as a greater portion of the governments revenue will in future be used to pay back the interest of loans and the money available for social sector initiatives will reduce. Besides the fiscal deficits accumulate over years resulting in a big debts and debt traps.
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