India's former Finance Minister Palaniappan Chidambaram on Tuesday backed the federal regulator Reserve Bank of India's (RBI) plan to print more money to meet the burgeoning expenditure needs of the country's COVID-battered economy.
"Yes, the government must print money. It has the sovereignty right to print money to meet its expenditure needs," Chidambaram said at a press briefing.
“The government could always withdraw the excess currency in circulation at a later stage, if it feels the need to do so,” added Chidambaram, a senior parliamentarian from India’s main opposition party Congress.
Support for printing money to inject liquidity and boost spending in the world’s fifth largest economy has been gaining momentum amid the unprecedented economic due to the pandemic.
On Monday, India’s National Statistics Office (NSO) reported that the nation’s GDP for the financial year 2020-21 contracted by 7.3 percent, while the federal agency estimated that the country’s economy grew by 1.6 percent in the final quarter (January-March 2021).
The economic slowdown in India is the worst on record since 1979-80.
A report by India’s Azim Premji University says that nearly 230 million Indians have fallen below the poverty line since the pandemic.
Mumbai-based think tank – the Centre for Monitoring Indian Economy (CMIE), one of India’s most respected – has estimated that 97 percent of Indians are poorer this year than they were before the pandemic. It also says that India’s unemployment rate has risen to a record of 14.73 percent, the first time in recent years that it's hit double digits.
Observers have suggested that one of the ways to tackle the economic distress is to boost people's spending power by printing more money.
In an interview with a leading English daily this week, Indian-born economist and Nobel Laureate Abhijit Banerjee argued that India needs to print money to not only boost spending and drive domestic demand, but also as a means to purchase more vaccines in the coming days.
“We need resources to support the poor as well as to deal with a bunch of potential defaults on loans… This is the ideal moment to do that,” he said.
The economist also said the government must not be scared of runaway inflation, a risk associated with printing money, as the nation’s inflation rate is currently not that high at 3-4 percent.
One of the risks with printing money is that sellers could be enticed to increase prices due to availability of cash in circulation, which could fuel inflation.
In the past, nations such as Zimbabwe and Venezuela have witnessed their economies spiral into hyperinflation due to printing of currency to counter economic downturns.
Ex-Finance Minister Believes Modi Gov't Compounds India’s Economic Distress
At his Tuesday’s presser, the former federal finance minister said Prime Minister Narendra Modi’s government is responsible for compounding the economic distress of the 1.3-billion-strong nation.
“Good advice by distinguished economists and renowned institutions has been rebuffed. Worldwide experience has been ignored. Suggestions on fiscal expansion and cash transfers have been turned down. Hollow packages like Atmanirbhar (elf-reliant India campaign) have fallen flat,” stated Chidambaram.
He also described 2020-21 as the “darkest financial year” in four decades in India.