766 776 6266

12/10/2020 - Indian Economy

iasparliament Logo
October 12, 2020

Should the Reserve Bank of India be the debt manager of the Government of India? Comment  (200 Words)

Refer - Business Line

Enrich the answer from other sources, if the question demands.

Login or Register to Post Comments

IAS Parliament 11 months


·       It is important to mention in this context that the RBI has been extremely pro-active in its liquidity support to the financial system. According to the MPR October 2020, overall, total liquidity support announced by the RBI since February 6 (up to September 30, 2020) amounted to 11.1 lakh crore (5.5 per cent of GDP) in terms of various monetary policy instruments. This is huge firepower by any standards.

Printing money

·        Such funding of market borrowings of the government has been facilitated by liquidity support from the RBI, which in ordinary parlance means printing money.

·        To the extent the banks heavily funded the borrowing programme of the government, it has facilitated by keeping the government bond rates lower (the weighted average cost of borrowings by the Central government during the first half of 2020-21 at 5.82 per cent is the lowest in the last 16 years) as mentioned in the governor’s statement.

Three-speed approach

·       The governor, however, set out a three-speed approach to recovery and dipped into cricket to offer the view that sector-specific realities will come into play: a) agriculture, FMCG, two-wheelers, passenger vehicles, pharmaceuticals, tractors, etc., will “open their accounts earliest”, (b) some other sectors will show slower normalisation and will “strike form” gradually, and (c) the sectors which will be in the “slog overs”, which are essentially contact–intensive and most severely affected by social distancing.

·       Notwithstanding this claim, the MPR has mentioned that near-term outlook remains hostage to virus and attendant uncertainties around the discovery of a vaccine to stop the spread of the Sars-Cov-2 virus.

·       To the extent the virulence of the pandemic is yet to abate and a solution is critically dependent on a vaccine, all endeavours should be shifted to the health sector, both by public and private participation rather than the RBI engaging in the commission of the original sin.





Upsc Mains 2020