‘RBI should not print money to finance fiscal deficit’

The RBI should not print money to finance the fiscal deficit as it will lead to fiscal profligacy, eminent economist Pinaki Chakraborty said on Sunday, expressing hope that India will see a faster economic recovery if there is no major third pandemic wave.

Chakraborty — the director of the National Institute of Public Finance and Policy (NIPFP) — said that high inflation is certainly a concern and there is a need to stabilise inflation to a level which is manageable.

I think this debate started in the beginning of the pandemic and printing money for deficit financing was not considered. I don’t think the RBI should ever do that,’ he noted and added that it will only ‘incentivise fiscal profligacy’.

‘We stopped it in 1996 through memorandum of understanding (MOU) between the RBI and the government. We should not go back to it again,’ he said.

There have been calls from various quarters recently that the central bank should print money to finance the fiscal deficit. The RBI’s monetisation of fiscal deficit means the central bank printing currency for the government to take care of any emergency spending to bridge its fiscal deficit.

Chakraborty said that India’s current macroeconomic situation is certainly better than what it was during the first wave of the COVID-19 pandemic. ‘Going forward, we should see a faster economic recovery if there is no major third COVID-19 wave,’ the eminent economist said.

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