D Subbarao said that RBI can provide necessary finance to the government by printing the notes directly, but it should be used only when there is no other option left.
Former Reserve Bank of India (RBI) Governor D Subbarao said that the central bank can provide necessary finance to the government by printing the notes directly, but it should be used only when there is no other solution. He also said that there is no such situation in India yet. Subbarao said that the economy has slowed down due to the second wave of the COVID-19 epidemic and the lockdown imposed at the state level for its prevention. To deal with this, the government can consider the option of bringing COVID bonds to raise money. It should not be in addition to the budget fixed in the budget but under it.
He said, RBI can print the note directly, but it should be done only if there is no other option left. Of course, there are times when printing of additional currency is necessary despite the adverse effect. This situation occurs when the government cannot finance its deficit at a reasonable rate. Subbarao said, however, we are not in that situation as of now.
Economy down by 7.3 percent
The country’s economy declined by 7.3 percent in the financial year ended March 2021, which is less than various estimates. The government has projected the fiscal deficit to be 6.8 percent for the financial year 2021-22. A target has been set to bring it down to 4.5 per cent by 2025-26.
The Reserve Bank has reduced the country’s economic growth forecast for the current financial year from 10.5 per cent to 9.5 per cent in view of the uncertainty caused by the second wave of the pandemic. At the same time, the World Bank on Tuesday has projected the economic growth rate to be 8.3 percent in 2021.
RBI may print notes
According to Subbarao, when people say that RBI should print notes to meet the deficit of the government, they do not realize that the central bank is still printing currency to meet the deficit, but it happening indirectly.
He said that for example when the Reserve Bank buys bonds under its open market operations (OMOs) or dollars under its foreign exchange operations, it is printing currency to pay for those purchases and this money is indirect. Normally the government debt goes for financing.
Subbarao said, however, the key difference is that when the RBI prints notes as part of its liquidity regime, he himself is in the driver’s seat and decides how many notes to print and how to move them.
In contrast, printing surplus currency is seen as a way of financing the government’s fiscal deficit, he said. The quantum and timing of the amount to be printed in this is decided by the borrowing requirement of the government rather than the monetary policy of the RBI.
Monetization of the fiscal deficit of the Reserve Bank means that the central bank prints currency for the government for emergency expenditure under its fiscal deficit.
Government can raise money by issuing COVID bonds
Asked whether covid bonds are an option through which the government can consider borrowing something, Subbarao said, “It is some good option which can be considered. But it should not be in addition to the borrowing prescribed in the budget, but as a part of it.
In other words, Subbarao said that instead of borrowing in the market, the government can raise a part of its borrowing requirements by issuing COVID bonds to the people.
He said, this type of COVID bond will not increase the money supply and it will not make any difference to the cash management of RBI.
RBI can earn more profit to reduce the deficit of the government?
Asked whether RBI can generate more profits to help ease the fiscal pressure of the government, he said the central bank is not a commercial institution and profit-making is not its objective.
When asked what else RBI can do for economic revival, he said that since the beginning of the pandemic a year ago, RBI has been taking rapid and innovative steps.
Subbarao said, what the RBI can do in the coming times, the governor has clarified in his statement regarding the recent monetary policy review. It states that there should be an ‘equitable’ distribution of cash. That is, the most stressed areas should get credit facilities.
read this also- New Information for SBI Customers! Now apply online sitting at home ATM card and update mobile number like this