Monetization of deficits: Government may get RBI for monetized deficit. India Business News

Monetization of deficits: Government may get RBI for monetized deficit. India Business News

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New Delhi: The central government’s Reserve Bank of India (RBI) option is likely to be demonetized in the second half of the financial year, with a senior government official saying that the Center is seriously investigating the issue. “This is an option we have not stopped. This is too much, ”the officer, who did not wish for identification, continued.
The assessment within the government is that expenditure in the first half of the financial year will be met through market borrowing and will re-prioritize for various ministries. There is uncertainty about how long the epidemic will last and the government is unwilling to make any hasty decisions at the beginning of the financial year.
The RBI’s demonetisation of fiscal deficit broadly means central bank printing currency, which is for the government to take care of any emergency spending and bridge its fiscal deficit – this action is taken in emergency situations.

This practice was followed in the late 1980s and 1990s, where the central bank helped to meet the deficit. But since then several reforms have been introduced, including the Fiscal Deficit and Budget Management Act (FRBM), to monitor the fiscal deficit and motivate governments to comply in a prudent manner.
The Kovid-19 epidemic has had a devastating impact on revenue, both directly and indirectly, with a three-month national lockdown unveiled to prevent the spread of coronovirus. This has prompted the government to pursue its full-year lending plan by about 50% to help it meet its spending commitments due to the epidemic. Experts have said that the move could push the fiscal deficit to 5.5% of GDP from the earlier target of 3.5%.
NR Bhanumurthy, a professor at the National Institute of Public Finance and Policy, said while answering a question that it would all depend on how much the government might have to borrow through the RBI.
He said that the RBI can either print money or buy government bonds from primary dealers to reduce losses. Bhanumurthy said, “If the government opposes demonetisation, it should clearly state that it is a temporary measure and its fiscal road map is clear.”
RBI Governor Shaktikanta Das was quoted as saying that the RBI has not considered monetization of the deficit. Former FM P Chidambaram and other economists have supported the idea of ​​deficit demonetisation and said that the government should not shy away from this option.

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