The table shows the revenue and expenditure of a government (in ₹ crore). When its expenditure is more than its income, the government borrows from banks, from people within the country and from international financial institutions to meet the gap. This is called deficit financing.
| Year | Revenue | Expenditure |
|---|---|---|
| 2020 | 500 | 450 |
| 2021 | 520 | 520 |
| 2022 | 540 | 600 |
| 2023 | 560 | 610 |
In which years did the government need deficit financing?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 2022 and 2023 only
Deficit financing is needed when the government’s expenditure exceeds its revenue. Compare the two in each year:
2020: expenditure 450 is less than revenue 500, so there is no gap.
2021: expenditure 520 = revenue 520, so there is still no gap.
2022: expenditure 600 is more than revenue 540, a gap of ₹ 60 crore.
2023: expenditure 610 is more than revenue 560, a gap of ₹ 50 crore.
NCERT (2026-27): “3.2 Background The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. We know that for implementing various policies and its general administration, the government generates funds from various sources such as taxation, running of public sector enterprises etc. When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions. …” Glossary: “Deficit Financing – A situation where the expenditure of the government exceeds its revenue.” |