What is fiscal deficit?
It is the difference between government's total expenditure and its total revenues excluding money generated from borrowings.
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What happens if fiscal deficit shoots up?
The government has to borrow more or ask the Reserve Bank of India to print more money to finance its excess expenditure. But printing of currency has its side effects. An increase in money supply in the economy can lead to inflation and raises interest rates. Therefore, no government wishes to finance fiscal deficit by printing more money. So, borrowing becomes the preferred route to finance fiscal deficit.
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