The programme of public investment should be financed by the borrowing rather than by taxation this kind of borrowing is called deficit financing."

If during a given period of time the expenditure of government exceeds than it revenue and the deficit is met by borrowing it is called deficit financing.
Government adopts two method in this regard :
1. Government uses the cash balances of the past.
2. Government borrows from the central bank which issues the paper currency.
So we can say that deficit financing ultimate result is the issuance certain of paper money.

There is a difference in deficit financing and deficit budgeting. When current expenditure is excess than the current revenue it is called capital account, on the other hand when current capital receipts are not adequate to meet the development expenditure and this gap is financed by borrowing from the banking system is called deficit financing.

DEFICIT FINANCING AND DEVELOPING COUNTRIES :-
In the developing countries capital resources are inadequate for financing the economic development. The rate of taxes can not be increased because the rate of saving and consumption will fall. The rate of saving is already very low in the less developing countries due to low per capita income. So government adopts the deficit financing policy to break the vicious circle of poverty. The main reasons for using this policy are as under :

1. To Cover the Gap :-
When the Govt. is unable to fill the gap between the total receipts and total expenditure by imposing taxes then Govt. adopts the policy of deficit financing. By adopting this way Govt. can avoid the displeasure of the people.

2. Low Savings :-
In the under developed countries normally rate of savings is 10% to 14% of the GNP which is very low. As