Page 34 - The Indian EYE 061821

Business EYE JUNE 18, 2021 | The Indian Eye 34

Should rBi print money to

tide over fiscal crisis as suggested

by uday Kotak?

Experts say instead of borrowing in the market, the government could raise a part of its

borrowing requirements by issuing Covid bonds to the public

According to Subbarao,
Our Bureau when people say the RBI
New Delhi should print money to finance
the government’s deficit, they
o revive the dwindling don’t realize that the central
economy at this time of bank is printing money even
Tcoronavirus pandemic, now to finance the deficit, but
Kotak Mahindra Bank chief ex- it is doing so indirectly.
ecutive Uday Kotak has given In contrast, Subbarao said,
two suggestions. Speaking to monetisation is seen as a way
a TV channel, he said that the of financing the government’s
country needed to print cash to fiscal deficit, with the quantum
support the economy that has and timing of money to be print-
been damaged by the protract- ed being decided by the govern-
ed COVID-19 crisis. ment’s borrowing requirement
Giving further suggestions, India had resorted to debt monetisation in the 1980s that went up to the rather than the RBI’s mone-
the Kotak Mahindra Bank late 1990s, and it was the norm for the government tary policy. “That will be seen
chief said this needs to be done as RBI losing control over the
in two parts – one for those at India may need to print central bank can directly print money supply, which will erode
the bottom of the resources some money. Kotak was not money and finance the govern- the credibility of both the RBI
pyramid, and the other for the suggesting something new. In- ment, but it should avoid doing and the government with costly
protection of jobs for sectors dia had resorted to debt mon- so unless there is absolutely no macroeconomic implications,”
affected by the pandemic. etisation in the 1980s that went alternative, former RBI gover- he observed.
India’s economy contracted up to the late 1990s, and it was nor D Subbarao on Wednesday Asked whether a Covid
by less-than-expected 7.3 per the norm for the government. said while pointing out that bond is an option that the gov-
cent in the fiscal ended March The deficits were mone- India is ‘nowhere’ near such a ernment can consider to raise
2021. For 2021-22, the deficit has tized through adhoc treasury scenario. some borrowing, the former
been put at 6.8 per cent of the bills, which were finally phased In an interview, Subbarao RBI governor said, “It is some-
GDP, which will be further low- out after 1997. In 1994, a pact suggested that to deal with the thing worth considering, not in
ered to 4.5 per cent by 2025-26. between RBI and the govern- second wave of Covid-19 in- addition to budgeted borrow-
The Reserve Bank has low- ment resulted in curbs being duced slowdown in the econ- ing, but as a part of that”.
ered the country’s growth pro- put in effect. Post-1997, the omy, the government can con- In other words, Subbarao
jection for the current finan- government circumvented sider Covid bonds as an option said instead of borrowing in the
cial year to 9.5 per cent from these curbs by asking the RBI to raise borrowing, not in ad- market, the government could
10.5 per cent estimated earlier, to pick up unsubscribed public dition to budgeted borrowing, raise a part of its borrowing
amid the uncertainties created debt. Finally, the FRBM Act, but as a part of that. requirements by issuing Covid
by the second wave of the coro- 2003, barred the RBI from buy- “It (RBI) can (print mon- bonds to the public. “Appro-
navirus pandemic, while the ing primary issuances of gov- ey) but, it should avoid doing priately priced and structured,
World Bank on Tuesday pro- ernment debt. so unless there is absolutely no they can provide relief to savers
jected India’s economy to grow India had mastered the art alternative. For sure, there are who are short-changed by the
at 8.3 per cent in 2021. of money printing, and the pay- times when monetisation – de- low-interest rates on bank fixed
The RBI’s monetisation of ment crisis it saw in 1991 and spite its costs - becomes inevi- deposits.
fiscal deficit means the central the 2013 scare was a result of table such as when the govern- “Moreover, such Covid
bank printing currency for the these fiscal deficit balancing ment cannot finance its deficit bonds will not add to the money
government to take care of any acts. at reasonable rates. supply and will not, therefore,
emergency spending to bridge But some top experts are “We are nowhere near such interfere with RBI’s liquidity
its fiscal deficit. advising against the move. The a scenario,” he said. management,” he pointed out.

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