Monetising the deficit

Monetising the deficit: Using demonetisation to plug the fiscal gap is not without risks...

Stop playing with trust
This refers to your editorial “Monetising the deficit” (Business Standard, November 17). Floating of the very idea of “Using demonetization to plug the fiscal gap”, by itself is mischievous and if one attributes a motive of destabilizing India behind such a thought, one cannot be blamed.
The currency note of Rs 2 and above carries a promise (“I promise to pay the bearer the sum of …rupees”) signed by Reserve Bank of India governor and a sovereign guarantee (“Guaranteed by the Central Government”). The promise and guarantee are not governed by any date line. Prime Minister Modi’s November 8, 2016 announcement has talked only about the ‘legal tender’ character of Rs500 and Rs 1000 notes and has not withdrawn the promise by RBI to pay value or the sovereign guarantee that accompanies the promise.
Deadlines for exchange/deposit of the affected notes can at best be construed as ones fixed for administrative convenience of implementation of the scheme. Making notional entries in RBI’s books to create income by extinguishing liabilities against notes ‘withdrawn from circulation’ and not reaching back RBI, within a stipulated deadline can have perilous long term implications.
Though so far the gossiping is only in the media, and no proposals from the GOI/RBI side, a couple of points need to go on record. There are outer contours up to which governments can play such games taking judiciary and people for granted. The sanctity of public trust need to be preserved at any cost and if governments allow to be guided or lured by possibility of short term gains, the negative impact on financial sector and economy can be a multiple of the notional temporary gains. If one needs an example, such measures will have immediate repercussions on public debt.
M G Warrier, Mumbai


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