Opinion | We must not hesitate to spend on a revival2 min read . Updated: 27 Jul 2020, 09:07 PM IST
Concerns of runaway inflation caused by a big fiscal stimulus programme are overblown in our current economic circumstances. The covid crisis is unlike any India has had before
As India’s economy limps along, it seems policymakers are yet to make up their mind on whether the economic benefits of deficit monetization outweigh the risks. So far, no move has been made to amend curbs placed on extra spending by India’s Fiscal Responsibility and Budget Management Act, though hints of greater expenditure to come later suggest that this law’s escape clause would be used to the hilt. Meanwhile, voices have arisen warning against the central bank directly picking up government debt to finance another round of stimulus. The first bout was weak to begin with, and if fiscal hawks have their way, we cannot expect a booster shot either. Now Viral Acharya, a former deputy governor of the Reserve Bank of India and fierce advocate of RBI autonomy, has described monetizing deficits as a “deeply flawed" approach and reminded us of the inflation outbreaks and external sector instability brought on by doing so in the past. Since India swore off deficit monetization back in 1997, there are many who worry about “regressing" to the old days if we resort to it.
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