News By/Courtesy: Lia Jils | 17 Sep 2020 10:42am IST

HIGHLIGHTS

  • Understanding fiscal deficit and monetary fiscal deficit.
  • Why do India spend more than they earn?
  • Arguements for and against printing tons of money.

India is a developing country as it has and still going on many phases to fight poverty. The coronavirus again pushed the Indian economy into a recession. Many countries are adopting unorthodox measures. Developed countries like the U.S., Japan, Europen Central Bank are all printing money to bring economies back to life. But India is not doing so. There many reasons and before coming to that let us first look at what is fiscal deficit. The fiscal deficit is the difference between the total revenue of the government minus its expenditure. For the year 2019 to 2020, the central government receipts were 19.32 lakh crore while its expenditure was 26.98 lakh crore This means that the government spends more than they earn. Politicians or policymakers use the fiscal deficit to expand public works without raising taxes. The monetization of public debt means the purchase of government bonds by the central bank. It means printing more money.

Now the question arises that why India doesn't print tonnes of money. Printing more money in the past hasn't helped much. It increases the money supply in the economy. It increases the prices of goods and services as sellers take advantage of it. This has happened in Zimbabwe and Venezuela and the countries suffered from hyperinflation. Some economists say that there should be limited monetization to undertake extraordinary situations. The money raised by the government can be used for higher spending and protect the economy. It can also be used for the poor and vulnerable during hard circumstances. Another term is crowding out when government borrowing raises interest rate credit available for the private sector reduces allowing a very low amount of money available to them. The monetization of fiscal deficit is good but there are chances of high inflation and currency depreciation which distorts the macroeconomic balance. But many agencies see the fact that if more money is printed it leads to an increase in government spending on education and health. There are also arguments against the printing of money that is

  • more spending due to unlimited supply that may lead to fuel the NPAs and the risk of rating will go down if the authorities feel that the government debt has risen to unsustainable levels. 

  • if the value of currency depreciates foreign investors lose confidence amongst us and they won't invest in India and increasing the demand for the dollar against the rupee leads to a plummeting exchange rate.

Many economists and researchers are of the view that developing economies like India should support local economies than developed markets

 
This article does not intend to hurt the sentiments of any individual, community, sect, or religion, etcetera. This article is based purely on the author’s personal opinion and views in the exercise of the Fundamental Rights guaranteed under Article 19(1)(A) and other related laws being enforced in India for the time being.

Section Editor: Pushpit Singh | 18 Sep 2020 10:04am IST


Tags : #India #poverty

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