Should RBI print notes to tide over economic crisis? Here's what the Governor feels

Amidst the calls for printing of notes, or deficit financing, the Reserve Bank of India (RBI) Governor Shaktikanta Das has said "it is a very hypothetical question at this point in time."

In response to a media query on RBI's views on taking the deficit financing route to support the economy, Das said, "Central Bank with regard to printing of notes have their own models and assessment. The RBI takes a decision based on so many complex factors which relate to financial stability, inflation level, stability of the exchange rates, etc."

Uday Kotak, the outgoing CII President and the head of private sector Kotak Bank had recently said that "this is the time to expand the balance sheet of the government, duly supported by the RBI... for monetary expansion or printing of money."

Nobel laureate Abhijit Banerjee has also been suggesting India should print money and transfer cash directly to the poorer sections of society.

Also read: MPC meet: RBI projects inflation at 5.1% for FY22

Former Finance Minister P Chidambaram had also urged the government to borrow money or print banknotes, and to spend it aggressively without worrying too much about the widening fiscal deficit numbers

The sudden call for deficit financing has gathered after the second Covid wave and its impact on the pace of economic recovery. The two successive years of Covid disruption have increased income inequality globally.

The growth forecasts for the current year put out by various credible institutions are already down. The RBI has revised its real GDP projection from 10.5 percent to 9.5 percent in 2021-22. Global rating agency Moody's has recently revised India's GDP from 13.7 per cent to 9.3 per cent. The country's largest bank, the State Bank of India's research team has forecasted a real GDP of much lower at 7.9 per cent as against 10.4 per cent projected earlier.

Also read: RBI MPC meet: Central bank to pump in Rs 1.2 lakh cr under G-SAP in Q2FY22

The lower growth forecast will have an impact on the country's fiscal deficit, which is targeted at 6.8 per cent of the GDP in 2021-22. The fiscal deficit was  9.5 per cent in 2020-21. The borrowing target for 2021-22 is currently kept at Rs 12 lakh crore, which is very high.  

Governor today said the RBI has managed the borrowing programme of the central as well as the states quite successfully in 2020-21. "This time (2021-22) also the RBI is taking various measures like GSAP," said the governor. The government securities acquisition programme or the GSAP aims to provide more liquidity in the government securities market.

Also read: RBI lowers real GDP to 9.5%, closer to Moody's estimate of 9.3%