The second wave of the Covid-19 pandemic has put immense pressure on the Indian economy and many prominent voices have urged the government to increase its expenditure and announce relief measures to tide over the crisis.
Some experts and industry leaders suggest that increased expenditure and more relief measures can be achieved if the Reserve Bank of India (RBI) increasing printing currency.
Some individuals have called for more cash printing including billionaire banker Uday Kotak. He said, “This is the time to expand the balance sheet of the government, duly supported by the RBI… for monetary expansion or printing of money.”
While Banerjee said that the additional cash printing will help in direct cash transfers to poorer sections of the society, Chidambaram said the government should “act boldly and spend” by borrowing or printing more money.
“This is not the time to worry about the fiscal deficit. So what if the deficit widens to 6.5%? We can’t lose another year like we lost the last year. But the way the government is reacting, we are going to lose another year. My advice to the government is to act boldly and spend. Borrow or print money and spend,” Chidambaram said.ADVERTISEMENT
When the government is required to increase its expenditure beyond budgetary allocation in view of a crisis situation, the central bank has the option of printing more money to support the additional liquidity requirement.
The process of spending more money by a government, known as deficit financing, can be achieved by borrowing or minting more money to increase liquidity in the economy.
The central bank has various options to increase liquidity, but it may not be a viable solution as it will not lead to a rise in economic output.
News Source: INDIA TODAY