ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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On Financing the Fiscal Deficit and Availability of Loanable Funds in India

A higher fiscal deficit - financed by domestic borrowing - does not necessarily crowd out private investment by limiting the availability of loanable funds for the private sector. The fiscal deficit always finances itself and the investment always generates an equal amount of ex post savings. The supply of money is always demand-determined and credit-led at any given interest rate. The available empirical evidence from India also substantiates this.



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