The central bank can consult the government on this, Singh said.
The Centre’s decision allowing states to borrow up to 5% of gross state domestic product ends the asymmetry between the Centre and states on the level of borrowing, he said.
"RBI is the principal debt manager to the government … It (option to monetise government's deficit) should be left to the RBI's judgement to in consultation with the government," Singh told ET. There is no need to second guess this, he added.
There have been demands that the government provide a large fiscal stimulus through monetisation of the deficit. “We should not foreclose any option. All options should be open to the sovereign in consultation with RBI,” Singh had said earlier, interacting with reporters over a videoconference after a meeting of the committee on fiscal consolidation and health set up by the commission.
The committee noted that both union and state governments will have to make substantive expenditures to tackle the unprecedented situation caused by Covid-19.
Most experts have said the ₹20 lakh crore stimulus by the government had only about ₹2 lakh crore support from the budget and was not enough to revive demand.
The government had earlier this month raised the FY21 gross market borrowing target to ₹12 lakh crore from ₹7.8 lakh crore estimated in the Budget presented in February, on the back of the pandemic that has hurt government revenues.
Singh said there would be a lag in recent reforms reflecting on growth and that the fiscal consolidation committee differed in opinion over the recovery in India's growth — whether it would be V-shaped, U-shaped or L-shaped — after this crisis. He said the committee members were of the view that the nominal GDP could either shrink around 0.6% or grow up to 1% in the current fiscal, before accelerating to 4-5% next year.
Singh said India would have to achieve GDP growth of over 8% in the medium term to sustainably manage the high debt burden arising out of increased expenditure due to the pandemic.
The Centre has allowed states to borrow up to 5% of GSDP from 3% earlier, but beyond 3.5% the higher limit is tied to reforms such as implementing the one nation-one ration card project. “The reform corrects the asymmetry," he said adding that states were not obliged to borrow more. “…they have to stick to 3% according to Article 293. Now states have flexibility to borrow 0.5% more (without further conditions); earlier this flexibility was conditional too," he said. However, he said the difficult job would be the path of return to a sustainable debt trajectory. "It will be challenging,” he said.
Singh said the panel on health issue suggested steps to increase supply of medical professionals, particularly in the deficient states, and use of technology to bridge the gap. The panel, he said, suggested measures like allowing final year MBBS students or paramedics in their final years to join the professional fray.
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