All options open to govt to monetise deficit in consultation with RBI: N K Singh
"We need not foreclose any option," Singh said when asked about whether the government should go for monetisation of deficit.
He said all options should be open to the sovereign in consultation with the Reserve Bank of India (RBI).The Rs 20-lakh crore economic package, which includes government measures and RBI liquidity, according to experts, entailed less than 10 per cent cash outgo from government coffers.
The central government has earlier this month raised the estimated gross market borrowing to Rs 12 lakh crore from Rs 7.8 lakh crore as per the Budget Estimates for 2020-21.As part of the economic package, the Centre on May 17 raised the borrowing limit of states from 3 per cent of gross state domestic product (GSDP) to 5 per cent in 2020-21, which will make available an additional Rs 4.28 lakh crore.
The higher borrowing will lead to a increased fiscal deficit of the Centre. The Budget pegged the deficit at 3.5 per cent of GDP and experts are now predicting the deficit to be around 5.5 per cent of GDP.Monetisation is loosely referred to printing of currency by the RBI, monetising the deficit is when the RBI directly purchases government securities (G-secs) in the primary market to help with the Centre's expenditure. In turn, the RBI prints more money to finance this debt. The practice of monetising deficit was in vogue till 1997, when it was discontinued by then RBI governor C Rangarajan.
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