How government can put RBI's Rs 1.76 lakh crore windfall to best use
How government can put RBI's Rs 1.76 lakh crore windfall to best use
The central government received Rs 1.76 lakh crore from the RBI. Ram Singh, Professor, Delhi School of Economics, has expressed his views on how this money can be put to the best use.
Dr. Singh ascertains that the transfer of this sum from the central bank to the government can provide a shot in the arm to the finance ministry which had recently announced measures to stimulate the domestic economy. Measures like bank recapitalization, refunding input tax credits to businesses, and clearing outstanding dues of government entities, among others, are aimed at increasing the liquidity in the financial system.
Dr. Singh believes, however, that liquidity is not the problem. Low-interest rates have pushed the debt to equity ratio to an all-time low. This has resulted in investment falling below 30% of Gross Domestic Product – the lowest in 15 years.
Among his suggestions to make the best use of the aforementioned money transfer from the RBI, the first one is to use it for infrastructure development. The government can speed up investment of Rs 2,27,849 crore earmarked for the Pradhan Mantri Gram Sadak Yojana, Bharat Mala and the Indian Railways for doing so.
The second use of the transfer can be to help resuscitate the real estate sector. Though black-money driven speculative demand for real estate has vanished, houses are lying unsold and several projects have been deserted. The non-performing assets from such projects have enhanced the crisis in the NBFC space.
Thirdly, he suggests, the government can act as a responsible business partner by clearing payment dues on itself. This delay in payment to public and private sector companies forces these companies to borrow from the market and raises their cost of supply; it also causes project delays. By clearing these dues by using the money transfer from the RBI, the government can provide a big push to demand.
Takeaway-
Dr. Singh ascertains that the transfer of this sum from the central bank to the government can provide a shot in the arm to the finance ministry which had recently announced measures to stimulate the domestic economy. Measures like bank recapitalization, refunding input tax credits to businesses, and clearing outstanding dues of government entities, among others, are aimed at increasing the liquidity in the financial system.
Dr. Singh believes, however, that liquidity is not the problem. Low-interest rates have pushed the debt to equity ratio to an all-time low. This has resulted in investment falling below 30% of Gross Domestic Product – the lowest in 15 years.
Among his suggestions to make the best use of the aforementioned money transfer from the RBI, the first one is to use it for infrastructure development. The government can speed up investment of Rs 2,27,849 crore earmarked for the Pradhan Mantri Gram Sadak Yojana, Bharat Mala and the Indian Railways for doing so.
The second use of the transfer can be to help resuscitate the real estate sector. Though black-money driven speculative demand for real estate has vanished, houses are lying unsold and several projects have been deserted. The non-performing assets from such projects have enhanced the crisis in the NBFC space.
Thirdly, he suggests, the government can act as a responsible business partner by clearing payment dues on itself. This delay in payment to public and private sector companies forces these companies to borrow from the market and raises their cost of supply; it also causes project delays. By clearing these dues by using the money transfer from the RBI, the government can provide a big push to demand.
Takeaway-
- Though the government can use the money transfer from RBI to reduce its fiscal deficit, it can also use it to boost certain sectors, within the confines of fiscal deficit limits, which will also help in stimulating the economy.
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