Deficit Monetisation Not On Table At The Moment, Says Economic Affairs Secretary

The government is not considering to monetise its deficit at the moment for funding fiscal measures to lift the economy that’s headed for its first contraction in four decades, according to Economic Affairs Secretary Tarun Bajaj.

“…At this point in time, (deficit) monetisation is not on the table at all,” said Bajaj at an interaction with industry lobby Ficci. “It is not being discussed with the central bank also.” Still, he said citing improving revenues, that he will be able to better answer the question in three to four months.

Several economists and policy experts have suggested that the government should announce fiscal measures to lift the economy by letting the Reserve Bank of India fund its deficit. Deficit monetisation means the central bank buying government bonds directly to help its spending needs. Many countries have embraced the idea as the Covid-19 pandemic has disrupted economic activity globally.

The government has already increased its borrowing by half to Rs 12 lakh crore for the ongoing fiscal, Bajaj said. The government’s revenues are going up, and it has also mobilised some extra revenue from excise duty on petrol, and that’s going to help this year, he said.

Year Lost But Contraction Won't Be As Feared, Says Bajaj

The government may miss its revenue targets but the economy won’t see a contraction as anticipated by many, Bajaj said.

The first instalment of advance tax—due on June 15— showed revenue figures as promising and, Bajaj said, “This year, if we continue in this manner and if we are not saddled with any more surprises, may not be as bad as the outside world or we were thinking.”

The government may not be able to achieve its budget targets but the kind of contraction “some of the people are mentioning may also not turn out”, he said.

Ratings agency ICRA Ltd. expects India’s real GDP to contract 9.5% in FY21, a sharp downward revision of its earlier forecast of a 5% contraction. IMF sees the Indian economy shrinking 4.5% in the ongoing fiscal.

Bajaj said that data from World Bank, IMF, ADB, rating agencies, suggests a shrinkage of GDP this year, but there’s an expectation of a recovery next year. He said estimates for next year range from 5%-8%, indicating a v-shaped recovery.

Also Read: Shape Of India’s Economic Recovery Goes From V To W-ish

“This year may be a lost year for us, but it is not that this will continue in the next year and next to next year. After effects will remain, but we should be back to our growth journey, and I’m very confident about it.”