---
title: "Monetised Deficit: Meaning, RBI & UPSC GS3 | Model Diplomat"
description: "Monetised deficit is the part of a fiscal deficit financed by the central bank, crucial for understanding monetary policy in UPSC GS3 economy."
url: "https://modeldiplomat.com/learn/glossary/monetised-deficit"
---

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Model Diplomat Research Team · Last reviewed June 22, 2026

TL;DR

- Monetised deficit is the portion of a government's fiscal deficit financed by the central bank's net acquisition of government debt, expanding the monetary base.
- How is monetised deficit measured in India?
- Is deficit monetisation still legally permitted in India?
- How does monetised deficit differ from fiscal deficit?
- Why is monetisation considered inflationary?

[Civil Service & Diplomatic Exams](https://modeldiplomat.com/learn/civil-services/glossary)Updated June 22, 2026

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## Timeline

1. 1 April 1997

   The structural break came with the Supplemental Agreement between the Government of India and the RBI of September 1994, which phased out ad hoc treasury bil…

2. 1 April 2006

   The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 reinforced the discipline by prohibiting the RBI from subscribing to primary issues of centr…

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Example

In May 2020, amid pandemic borrowing pressures, the RBI under Governor Shaktikanta Das resisted calls to directly monetise India's deficit, relying instead on open market operations rather than reviving primary-market subscription barred since 2006.

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