4. Explain the difference between internal and external borrowing for deficit financing.

• Internal Borrowing:
  • Government borrows from domestic sources.
  • Examples: Issuing Treasury Bills and Dated Securities to Indian banks and public.
• External Borrowing:
  • Government borrows from non-residents.
  • Examples: Loans from foreign governments, multilateral agencies (World Bank, ADB).
  • Also includes FPIs purchasing government securities.