India should monetise deficit to rebuild economy after Covid: RBI board member Gurumurthy

S. Gurumurthy’s statement comes at a time when many economists expect govt to borrow directly from RBI, because of rising expenditure and falling tax revenues.

File photo of S. Gurumurthy | Facebook

New Delhi: There is no reason why a developing economy like India should not go in for monetisation of deficit, Reserve Bank of India central board member S. Gurumurthy said Monday.

Speaking at a webinar on ‘Rebuilding Indian Economy: Challenges and Opportunities’, organised by Bharat Prakashan Delhi Ltd, Gurumurthy blamed the existing prudential norms for the inability of the banks to lend to different sectors of the economy despite the need for funds. He favoured allowing a one-time restructuring of accounts classified as ‘non-performing’ to help Indian firms.

Gurumurthy pointed out how banks are depositing more than Rs 6 lakh crore per day with the RBI despite incurring losses, but are still not able to lend. He said a developing economy like India needs more capital.

“For a developing economy, we need more capital and (because of the Fiscal Responsibility and Budget Management Act), we can’t borrow from the central bank,” he said, adding that the fiscal deficit target of 3 per cent mandated by the FRBM Act has “no rationale”.

Gurumurthy’s statement comes at a time when many economists expect the central government to borrow directly from the RBI, as rising expenditure and falling tax revenues exert pressure on government finances.

Increase import duties

Gurumurthy made a case for increasing import duties to make ‘Make in India’ successful.

“No ‘Make in India’ programme will succeed unless there is protection for our goods. We have to protect our local industries,” he said, citing India’s success in becoming a mobile phone and automobile exporter.

He also said that no democracy can succeed in a global supply chain model dominated by China.

Lessons from Covid-19

Gurumurthy said the Covid-19 pandemic is a lesson to the manufacturing industry, saying employees have chosen to stay back wherever employers are taking care of them.

He added that out of the 3.3 crore migrant workers in India, only around 20-30 lakh want to go back to their homes.