Introduction
- In the Budget before the pandemic, India projected a deficit of ₹7.96-lakh crore. The financial deficit number is set to grow by a wide margin due to revenue shrinkage from the coming depression that will most certainly be accompanied by a lack of appetite for disinvestment.
- In addition to the expenditure that was planned, the government has to spend anywhere between ₹5-lakh crore and ₹6-lakh crore as stimulus.
- While the 60% increase in ways and means limits for States is a welcome move, many States have already asked for double the limits due to the shortages in indirect taxation collections from Goods and Services Tax, fuel and liquor.
Echo from the past: Using Bond
- As we wage a united war against this virus, it would be interesting for us to look at war-time methods of raising financing. One such method that has been used as early as the First World War is the Consol Bond.
- It would be interesting to figure what would happen – if the Prime Minister had made a similar call to every citizen of our country to invest in the government bonds instead of making donations.
Why is Bond a better option?
- There is no denying the fact that the traditional option of monetising the deficit by having the central bank buy government bonds is one worth pursuing.
- With the fall of real estate and given the lack of safe havens outside of gold, the bond would offer a dual benefit as a risk-free investment for retail investors.
- The government can consider a phased redemption of these bonds after the economy is put back on a path of high growth — a process that might take that much longer for every day we extend this lockdown.
-Source: The Hindu
