The Finance Ministry has not discussed any proposal to monetise its deficit with the Reserve Bank of India, Economic Affairs Secretary Tarun Bajaj said on Thursday.
Speaking at an event organised by industry body Ficci, Bajaj also said that based on tax collections so far, India’s economic contraction in FY21 may be less severe than previously anticipated, and that the proposal of a ‘bad bank’ had been discussed internally, but no decision had been taken.
“Currently there is no proposal for debt monetisation on the table. Questions on fiscal position and debt monetisation plan should be asked after 3-4 months,” Bajaj said.
A number of economists, including former RBI governor Raghuram Rajan, and former advisor to the Prime Minister, Rathin Roy, have advocated that the government can get the RBI to monetise deficit, provided that it has a clear expenditure plan on where is wants to spend the resources it raises.
Monetising the deficit is when RBI directly purchases government bonds (g-secs) on 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.
So far, the RBI has been ‘indirectly monetising’ by increasing the purchases of g-secs in the secondary market through open-market operations. If a decision is taken to directly monetise the deficit, that will also mean that the centre will borrow even more than the Rs 12 trillion it has announced so far for FY21.
As the pandemic and the nationwide lockdown – which is now lifted but some states are imposing their own lockdowns – brought economic activity to a halt, analysts across the board have slashed their estimates for 2020-21 GDP, with some expecting a contraction of as much as 9-10 per cent.
"June advance tax collections have actually been better than what we were expecting and that makes us believe that the contraction in the economy may not be as much as some are expecting," Bajaj said at the event and added that, India will witness a V-shaped recovery as the economic impact of COVID-19 is abating, Bajaj said.
Bajaj said that while there has been no final decision on plans for a bad bank or an asset restructuring scheme, there have been discussions internally within the government. This comes weeks after Finance Minister Nirmala Sitharaman said that the centre and RBI are discussing a one-time asset restricting for non-performing assets.
Bajaj reiterated that India will expand production-linked incentives to other sectors. Just days ago, Bajaj had said at another event that the Ministry of Electronics and Information Technology's production linked scheme for mobile phone manufacturing will be offered to other sectors as well.
Speaking at an event organised by industry body Ficci, Bajaj also said that based on tax collections so far, India’s economic contraction in FY21 may be less severe than previously anticipated, and that the proposal of a ‘bad bank’ had been discussed internally, but no decision had been taken.
“Currently there is no proposal for debt monetisation on the table. Questions on fiscal position and debt monetisation plan should be asked after 3-4 months,” Bajaj said.
A number of economists, including former RBI governor Raghuram Rajan, and former advisor to the Prime Minister, Rathin Roy, have advocated that the government can get the RBI to monetise deficit, provided that it has a clear expenditure plan on where is wants to spend the resources it raises.
Monetising the deficit is when RBI directly purchases government bonds (g-secs) on 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.
So far, the RBI has been ‘indirectly monetising’ by increasing the purchases of g-secs in the secondary market through open-market operations. If a decision is taken to directly monetise the deficit, that will also mean that the centre will borrow even more than the Rs 12 trillion it has announced so far for FY21.
As the pandemic and the nationwide lockdown – which is now lifted but some states are imposing their own lockdowns – brought economic activity to a halt, analysts across the board have slashed their estimates for 2020-21 GDP, with some expecting a contraction of as much as 9-10 per cent.
"June advance tax collections have actually been better than what we were expecting and that makes us believe that the contraction in the economy may not be as much as some are expecting," Bajaj said at the event and added that, India will witness a V-shaped recovery as the economic impact of COVID-19 is abating, Bajaj said.
Bajaj said that while there has been no final decision on plans for a bad bank or an asset restructuring scheme, there have been discussions internally within the government. This comes weeks after Finance Minister Nirmala Sitharaman said that the centre and RBI are discussing a one-time asset restricting for non-performing assets.
Bajaj reiterated that India will expand production-linked incentives to other sectors. Just days ago, Bajaj had said at another event that the Ministry of Electronics and Information Technology's production linked scheme for mobile phone manufacturing will be offered to other sectors as well.
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