Correct Answer - Option 3 : RBI
The correct answer is RBI.
Deficit financing is the budgetary situation where expenditure is higher than revenue.
- It is a practice adopted for financing the excess expenditure with outside resources.
- The expenditure revenue gap is financed by either printing of currency or through borrowing.
- This is borrowing by the government from RBI to finance the budget.
Methods of Bridging the Fiscal Deficit
- Borrowing from the market
- Monetization of the Deficit:
- Monetizing deficit means RBI purchases government bonds in the primary market and prints more money to finance the debt.
- This is resorted to only when the government cannot borrow from the market (Banks and other Financial Institutions like LIC).
- The money printed by the RBI is called high-powered money or reserve money or monetary base.
World Bank Group comprises of 5 institutions managed by their member countries
- These 5 institutions are
- International Bank for Reconstruction and Development (IBRD)- Commonly known as the world bank. It is the single largest provider of development loans
- International Development Association (IDA) – assists the poorest countries.
- International Finance Corporation (IFC) – supports private enterprise in developing countries.
- Multilateral Investment Guarantee Agency (MIGA) – offers investors insurance against non-commercial risk and helps developing country governments attract foreign investment non-commercial risks such as political instability, govt deciding to nationalize a private business, etc.
- International Centre for the Settlement of Investment Disputes (ICSID).