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NEW DELHI : With the Centre lacking resources to provide a large fiscal stimulus to the virus-battered economy, experts recommended pledging of shares of state-run companies with either the Reserve Bank of India (RBI) or a consortium of banks to raise funds, a suggestion that a finance ministry official said the government will explore.

In a Mint column on Tuesday, economist Ajit Ranade proposed that the government pledge its shares of state-run units, including the Life Insurance Corp. of India and Specified Undertaking of Unit Trust of India, with RBI to garner resources amounting to around 10% of gross domestic product (GDP) to finance a stimulus package for the economy that is reeling under the ongoing nationwide lockdown. “It’s an interesting idea but it needs thorough examination," a finance ministry official said on condition of anonymity.

Former Jammu and Kashmir finance minister Haseeb Drabu said a consortium of commercial banks, led by SBI, could lend to the government against the shares of state-run firms instead of RBI.

With Fitch Ratings warning that a deteriorating fiscal outlook could invite a downgrade for India from its current lowest investment grade sovereign rating, the government and economists are looking for out-of-the-box solutions to finance a stimulus package.

While RBI monetizing the Centre’s deficit by buying government securities in the primary market has been an obvious but last policy choice suggested by many economists, including former RBI governor C. Rangarajan, it is likely to push up India’s already bloated debt-to-GDP ratio, upsetting the rating agencies.

Ananth Narayan, professor of finance at SP Jain Institute of Management and Research, said any lending or transfer from RBI to the government is monetization. “Of course, we need to print and spend now. RBI is already at it with OMO/ WMA (open market operation/ways and means advances), etc. If this lipstick makes it better - sure, why not. Eventually, we need real sector solutions though—jobs and output," he tweeted.

The government has already taken measures to reprioritize expenditure this year, including freezing three instalments of dearness allowances for 11.5 million of its employees and pensioners from January 2020 to July 2021, thus saving 37,530 crore.

The finance ministry has also put departments in three categories, assigning a separate monthly and quarterly expenditure plan for each category to minimize the pressure on the exchequer.

Mint reported on Monday that the government is planning to slash this year’s budgeted capital expenditure of 4.1 trillion to create space for a stimulus package and finance covid-19 related requirements, as it tries not to expand the fiscal deficit too much amid shrinking revenues.

A former head of a PSU bank said the government has large stakes in public sector units and it may be a good idea to pledge shares. However, there could be actions from rating agencies if commercial banks do the same. “If loan against share is done by a commercial bank (or consortium), it would involve capital market regulator’s norms, which may also result in lesser amount with the government," the official said.

Gireesh Chandra Prasad contributed to this story.

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