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Monetise deficit

The govt has announced that it will borrow 62.6% of its total borrowing for the current fiscal in the first half
On Friday, the economic research wing of State Bank of India (SBI) said in a report that it is “imperative’’ that the government uses the clause given in the FRBM act and monetises its deficit by allowing the RBI to subscribe to the primary issues of the central government securities.
On Friday, the economic research wing of State Bank of India (SBI) said in a report that it is “imperative’’ that the government uses the clause given in the FRBM act and monetises its deficit by allowing the RBI to subscribe to the primary issues of the central government securities.
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Our Special Correspondent   |   Mumbai   |   Published 03.04.20, 11:30 PM

The call to monetise deficit — the RBI buying bonds directly from the government — is getting louder.

On Friday, the economic research wing of State Bank of India (SBI) said in a report that it is “imperative’’ that the government uses the clause given in the FRBM act and monetises its deficit by allowing the RBI to subscribe to the primary issues of the central government securities.

This comes just two days after the government announced that it will borrow 62.6 per cent of its total borrowing for the current fiscal in the first half.

The report points out that this has been the trend, with historical data showing that except for 2011-12 and 2018-19 the borrowing in the first half has always been above 60 per cent.

The ways and means advance (WMA) limit has also been raised to Rs 1.2 lakh crore from Rs 75,000 crore, (a 60 per cent increase) for the Centre.

Moreover, for the states and Union territories, the WMA limit has been increased by 30 per cent from the existing limit of Rs 32,225 crore to Rs 41,892 crore.

“We, however, believe the states require more support from the Centre as their finances are significantly stressed,” the report said. It added that the Centre and the states could borrow conservatively close to Rs 20 lakh crore in 2020-21. 



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