Deficit financing is the primary domestic source of fund mobilization for the government. Here is an explanation:Deficit Financing:- Deficit financing refers to the government's practice of borrowing money to cover the gap between its revenue and expenditure.- This can be done through various means, such as issuing government bonds, taking loans from domestic banks, or printing more currency.- Deficit financing allows the government to meet its short-term financial obligations and invest in long-term projects that can stimulate economic growth.- However, excessive deficit financing can lead to inflation and a rise in public debt, which could negatively impact the economy in the long run.While grants and loans can provide funds to the government, they are usually considered external sources of funding, as they typically come from foreign governments or international organizations.

Internal or Domestic Sources of Fund Mobilisation for the Government

Deficit financing is the correct answer as it is an internal or domestic source of fund mobilization for the government. Deficit financing refers to the situation where the government spends more money than it collects in revenue. In order to bridge this gap, the government resorts to borrowing from various sources within the country. Let's discuss each option in detail to understand why the others are not internal or domestic sources of fund mobilization.

1. Grants:
Grants are funds provided to the government by other countries, international organizations, or non-governmental organizations. These funds are typically given for specific purposes such as development projects or humanitarian aid. Grants are considered external sources of funds as they come from outside the country.

2. Loans:
Loans are financial resources borrowed by the government from domestic or foreign entities. While loans can be sourced from both internal and external sources, in this context, loans refer to external borrowing. External loans are obtained from international financial institutions, foreign governments, or commercial banks outside the country.

3. Deficit financing:
Deficit financing is the practice of financing government expenditure through the creation of new money by the central bank or by borrowing from the public, financial institutions, or other entities within the country. It involves the issuance of government securities such as treasury bills, bonds, or long-term loans from the central bank. Deficit financing is considered an internal or domestic source of funds as it involves borrowing within the country.

Conclusion:
In conclusion, grants and loans are external sources of fund mobilization for the government, while deficit financing is an internal or domestic source. Deficit financing allows the government to bridge the gap between its expenditure and revenue by borrowing from within the country. This practice has both advantages and disadvantages, as it can stimulate economic growth but also lead to inflation and debt accumulation.

Deficit financing