Printing money, the way to tackle India’s financial crisis

As the market cannot support huge borrowing, RBI can provide such funds by printing money

By Author  |  Business Bureau  |  Published: 1st May 2020  10:09 pm
Printing money, the way to tackle India’s financial crisis
Hyderabad: Covid-19 is making an unprecedented impact on economy, calling for bold monetary policy decisions. Economists and financial experts worldwide believe that printing money as part of quantitative easing will generate consumer demand, kick-start new projects, support businesses and the workforce. Also, in the global circle, there is a debate: Will $6 trillion (over Rs 450 lakh crore) in global quantitative easing be enough to beat the current recession? With the rising economic risks, it is time for the Government of India and the Reserve Bank of India (RBI) to start looking at printing money and other quantitative means to revive the economy.
The US, Europe, Japan, and even emerging economies such as Turkey and Indonesia are printing money and implementing measures to bring economies to normalcy. These leading economies are working on the lines of what Telangana Chief Minister K Chandrashekar Rao has advocated on the benefits of quantitative easing.
Echoing Rao’s views, former RBI governor and eminent economist Duvvuri Subbarao stresses the fact that States are facing a severe economic crisis and need support from the Centre to ensure healthcare, essential supplies and protection of livelihood. He also emphasised that the Centre needs to look at the recommendations made by the Telangana government and take a calibrated approach towards quantitative easing though such policy option is often seen as a last resort.
Several large economies in the world are finding ways to stabilise the liquidity in the system. The US Federal Reserve, which opted for printing money to counter the 2008 crisis, is likely to use the same route to solve the Covid-19 crisis. European Central Bank has removed the limit on bonds it can purchase from any Eurozone country, while Bank of England is ready to temporarily lend money to government if a situation arises. Bank of Japan, on the other hand, is willing to buy unlimited amount of government bonds.
Central banks across the world are significantly increasing their lending to financial institutions to fight against the damage that the coronavirus is causing to the economy. The Indian economy too needs such a strong fiscal stimulus. As the market cannot support huge borrowing, RBI can provide such funds by printing money.
As the lockdown is adversely impacting both the country’s and States’ economy, it was advocated that the Government of India and the RBI should go for quantitative easing to improve money circulation in the system and boost the economy.
Quantitative easing will help generate ‘helicopter money’, which is an unconventional way to empower the public with money to buy things and in the process boost the economy. It increases the number of currency notes, pumping more money into the market. In Quantitative Easing Policy, the RBI allows States to raise bonds for longer periods, buys back bonds from State governments and even prints additional currency notes. Helicopter money generated through Quantitative Easing Policy can help the State governments and the financial institutions, and can bail them out from the present financial crisis.
It may be recalled that Telangana Chief Minister has urged the government and the RBI to take immediate measures to address the impending crisis. He also sought the Union Government to increase the FRBM (Fiscal Responsibility and Budget Management) limit to five per cent from the present three per cent to help the States sail through the situation. Rao further suggested that a task force of Union Ministers under the chairmanship of Prime Minister should be constituted to study and decide the economic policies in the wake of lockdown induced by the pandemic.
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