RBI should not print money to finance fiscal deficit

RBI not allowed to print money 

Well-known economist Pinaki Chakraborty said on Sunday that the RBI should not print money to make up the fiscal deficit because it would lead to a fiscal deficit and expressed the hope that if there is no third wave of pandemics, India will see a faster economic recovery. RBI should not print money to finance fiscal deficit

In an interview with PTI, Chakraborty, director of the National Institute of Public Finance and Policy (NIPFP), said that high inflation is a problem, and inflation needs to be stabilized at a controllable level. “I think this debate started at the beginning of the pandemic and did not consider printing money to make up for the deficit. So I don’t think the RBI should do this,” he said, adding that it would only “stimulate fiscal waste.”

Recently, various parties have asked the central bank to print money to make up for the fiscal deficit. Monetizing the fiscal deficit by the RBI means that the central bank prints currency for the government to take care of any emergency spending to offset its fiscal deficit. 

 When asked if he favours providing cash assistance to people who lose their jobs during the pandemic, Chakraborty said: “We really cannot isolate the employment cycle from the economic recession. So faster recovery is the key to improving employment. Which the RBI should not assist in.” 

When asked about the fiscal impact of all the government stimulus measures, Chakraborty noted that the purpose of the stimulus measures is to revitalize the economy. “It is important to understand the sectoral nature of the stimulus, not whether it is provided through the budget or other means,” he added.

In terms of budget stimulus, the fiscal deficit has also increased by 9.5 per cent of GDP in the last fiscal year.  Chakraborty said: “If you take the fiscal deficit of the state government, it will also be around 4.5% of its SGDP, so we are talking about 14-15% of GDP together. As a deficit, we are talking about the debt- Proportion of GDP 90%. “

Last week, Finance Minister Nirmala Sitharaman announced that it would provide SMEs with an additional credit of Rs 150,000, provide more funds for the health sector, provide loans to travel agencies and tour guides, and waive visas fees for foreign tourists. A package plan to support the pandemic economy.

After the new coronavirus infection rate dropped, states began to lift restrictions and announced supportive measures. The economy seems to be on the path of recovery after being hit by the second wave of COVID.

Chakraborty said that regarding high inflation, it had reached a level which is a challenge that needs to be resolved in the coming months. “If we talk about economic contraction, unemployment and rising inflation, this will harm the distribution. Then inflation must be worrying and we must stabilize inflation at a manageable level,” he said.

 

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