New Delhi: In view of the financial constraints caused by pandemic COVID, the Government can consider raising funds by issuing ‘Special COVID Bonds’ as part of budgeted borrowings to finance its fiscal measures and stimulate the economy through public spending, according to Mr Sanjay Agarwal, President, PHDCCI.
Issuance of special COVID bonds could become an appropriate substitute to the market borrowings by the Government, he said.
“India’s current macroeconomic situation is certainly better than what it was during the first wave of the COVID-19 pandemic. Going forward, there would be a faster economic recovery on the back of proactive reforms undertaken by the Government during the last several quarters, along with meaningful steps taken to prevent or minimise the impact of the potential third wave of COVID-19”, Mr Aggarwal added.
Fiscal deficit occurs when government’s expenditure exceeds revenue in a year. The Government finances its fiscal deficit through various sources such as market borrowings, securities against small saving, state provident fund, external debt, taxing or printing money. Monetization of fiscal deficit or printing of money is generally the least preferred because of the risks of high inflation and currency depreciation, apart from a general deterioration in macroeconomic balance, Mr Agarwal opined.
Financing the fiscal deficit by printing more and more currency leads to increase in money supply in the economy and hence, results in a higher rate of inflation. This would escalate the already high inflation in the Indian economy. The WPI inflation has been on a double-digit growth trajectory since the last three months, thereby posing a serious challenge to the small businesses operating in the difficult pandemic times.
WPI Inflation is impacting the cost of production and reducing price-cost margin of the producers and eventually their competitiveness in the domestic and international markets. So, financing a persistent deficit by money creation will lead to a sustained inflation, said Mr Agarwal.
In this backdrop, PHDCCI appreciates the Union Finance Minister Ms Nirmala Sithraman’s statement recently that the Government has no plan to go for direct monetization of its fiscal deficit amid COVID-19 pandemic outbreak, Mr Agarwal added.
