Monetised Deficit
Deficit & Surplus Advancedमुद्रीकृत घाटा
Definition
Monetised deficit is the increase in RBI's net credit to the Central government. When the government borrows directly from RBI by selling treasury bills, it increases money supply in the economy — this is called monetisation of deficit. It was a common practice until the FRBM Act prohibited it. During COVID-19, a limited form was temporarily revived.
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Why Monetised Deficit Matters
Understanding monetised deficit is essential for anyone following government finances, preparing for competitive exams, or analysing India's economic policy. This concept directly affects how the government allocates resources and plans its fiscal strategy.
In the context of India's Union Budget 2026-27, with a total size of Rs 53.47 lakh crore, terms like monetised deficit help citizens and analysts evaluate whether the government is on the right fiscal path. The numbers in the budget are only meaningful when one understands the underlying concepts.
For UPSC aspirants, monetised deficit is frequently tested in both Prelims and Mains, particularly in Paper III (Economic Development). For CA and MBA students, this concept appears in public finance and macroeconomics courses.
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