Deficit financing is adopted when the expenditure is higher than the revenue in a budgetary situation. This expenditure revenue gap is financed by either printing currency or borrowing money to bridge the gap. Governments having deficit budgets often get their finances by borrowing. The indicator of deficit financing is the fiscal deficit. A fiscal deficit is a shortfall found in a government's income which is compared with its spending.
Deficit financing can be very useful in developing countries like India. Higher economic growth is important in developing countries. Printing new currency notes increases the flow of money, which leads to rise of prices of goods and services in the country. With the increase in aggregate demand, comes the danger of inflation. The main factor that causes a deficit in the budget is the revenue deficit. The difference between revenue receipts and revenue expenditure in an accounting sense.