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Why RBI shouldn't finance govt borrowings

In a crisis, it is imperative that a country borrows and spends more

Topics
Reserve Bank of India | Gross domestic product | Gross Domestic Product (GDP)

Errol D Souza & Astha Agarwalla 

Errol D Souza & Astha Agarwalla

The government announcement to borrow 54 per cent more than planned increases the Centre’s fiscal deficit up from the budgeted 3.5 per cent of (GDP) to 5.5 per cent. State governments will be encouraged by this to come out and borrow more, taking the combined fiscal deficit of the Centre and the states to well above 10 per cent of GDP. That could well be an underestimate by as much as 5 per cent of GDP as the budgeted growth of nominal GDP of 10 per cent is widely forecast to be 5 to 6 per cent. The final deficit could be even larger as the disinvestment target from and Bharat Petroleum Corporation Limited is unlikely to materialise.

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First Published: Wed, May 13 2020. 00:32 IST
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