Two days after announcing the fifth and final tranche of the Rs 20 lakh crore AtmaNirbhar package, Union Finance Minister Nirmala Sitharaman Tuesday, responding to a question on the possibility of deficit monetisation (in simple terms, printing currency), said that she had an open mind. And that she would seriously begin work on expenditure rationalisation given that the government’s revenue is likely to be severely hit because of the pandemic and the lockdown.
“I have to be ready (going ahead)…because no one knows how this is going to turn out, how this is going to end, how this is going to withdraw. So obviously I have to be ready, I can’t finish my story with these announcements,” Sitharaman told The Indian Express in an interview. She was responding to a question on whether the government was preserving the spending firepower for future.
She said given the nature of the pandemic, she had to be ready at all times because more than 10 months were left for the financial year 2020-21 to close.
When asked if deficit monetisation was on her table, Sitharaman said: “… I have kept myself open, as we go, we have to see how things develop. Do you or does anyone for that matter know how this pandemic is going to pan out? Or has it started retracting… Then can I guess it will be all over by December, then there is a point in me saying that all right, now I have to think about that. But we don’t even know if it has started retracting yet and we have 10 full months to go. So I have to watch as I go and be ready for anything. So I have said this now, I am readying myself for anything.”
In an earlier interview to Cogencis, a wire agency, on April 27, Reserve Bank of India Governor Shaktikanta Das too had said that the central bank had not taken a view yet on monetisation of deficit. “We will deal with it keeping in view the operational realities, the need to preserve the strength of the RBI’s balance sheet, and most importantly, the goal of macroeconomic stability, our primary mandate,” Das had said.
Deficit monetisation simply means that the Reserve Bank of India directly funds the Central government’s deficit. Until 1997, the government used to sell securities — ad hoc Treasury-Bills — directly to the RBI, and not to financial market participants. This allowed the government to technically print equivalent amount of currency to meet its budget deficit.
While several research outfits like NCAER and Goldman Sachs have projected the economy to contract this financial year, Sitharaman said, as far as her ministry was concerned, it was too early to make an assessment.
“It’s too early for me to even hazard a guess. We have sat over to talk about very many things, this was also something which (came up for discussion). I can’t (make an assessment now), I presented a Budget in February, not even two months ago. Many assumptions of my budget are now going to be questioned, reset etc.”
The Finance Minister said she had to already reset the government’s borrowing schedule. “So it’s not possible, it won’t be sensible for me to even make an assessment, saying this is where the economy is going to be, this is the extent to which the economy will contract. No, not now. I would rather keep myself open and see how things go and make the assessment a bit later,” she said.
Responding to criticism that the fiscal relief extended by the government was too low (The Indian Express estimated it at less than 1.1 per cent of GDP), Sitharaman said, “Everybody has a right to make an assessment. I have not hid anything from the public, I have said this is how I have done my work, how it’s being spread, this is the liquidity, Now if there are expectations that from the budget what is your outlay — let me tell you, this is Government of India, Ministry of Finance, dealing with public money. Is this ever going to hidden from anybody?”
To a question on why the government did not consider making larger cash transfers — say around Rs 3,000 – to migrants to alleviate the distress, the Finance Minister said, “I am not objecting to this suggestion. I repeat my answer, yes it was a suggestion we have heard, we have taken that into account, we have thought about it and in a way by extending the banks to reach out first without additional collateral for every small unit, let them refuse (to take) it but you approach to give, automatic is the word I use, what is that aimed at? It is aimed at giving some money to meet the fixed cost, it is aimed at giving some money to make sure that some payment for the wages are made. So that’s what we have done. I have made sure that banks will extend. Yes it’s a loan, it’s a credit, yes, it’s not a grant. But that’s where I am asking, grants for how many, of how much?”
With tax revenues severely under strain due to the sharp contraction, Sitharaman said, she would train her attention on cutting non-essential expenditure. “We started that exercise prior to Covid, because at that time the Finance Commission was speaking to us (informally) that can you rationalise it, and even by that time, we were looking at economy. It needed more push, it was slowing down, we could see the green shoots but still you had to do a lot more. We had started that exercise. Yes, now I will be doing it all the more seriously,” she said.
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