HYDERABAD: Chief Minister K Chandrasekhar Rao on Saturday advocated use of “helicopter money” to tide over the present lockdown-induced economic crisis in the country. During Prime Minister Narendra Modi’s video conference with the chief ministers, Rao suggested that the Reserve Bank of India (RBI) should adopt the Quantitative Easing Policy.
Helicopter money (helicopter drop) is a method of increasing the number of currency notes and pumping more money into market. Money will be distributed among citizens, private institutions, the State governments and others. “Helicopter money will be generated through the implementation of Quantitative Easing Policy by the RBI,” sources in State Finance Department told Express. In Quantitative Easing Policy, the RBI allows States to raise bonds for longer periods, buy back bonds from the State governments and even print extra currency notes and generate ‘helicopter money’, which would increase the purchasing capacity of individuals, sources explained.
During his interaction with the Prime Minister, Rao said that there was an economic crisis in the world after a Spanish Flu gripped the world in 1918 and when there was economic slowdown in 2008, the world suffered a lot and recovered. “Similar economic problems have surfaced now. We need a strategic economic plan to overcome the present crisis,” Rao suggested to Modi.
‘Enhance FRBM limit to allow us raise more loans’
Chief Secretary Somesh Kumar and Principal Finance Secretary K Ramakrishna Rao too were present along with the Chief Minister during the PM’s video conference. Rao said the “helicopter money” generated through Quantitative Easing Policy would help the State governments and also the financial institutions which provide finances to governments or individuals. “This will bail us out from the present financial crisis,” Rao said.
While suggesting that the Centre should release five per cent of the GDP through Quantitative Easing Policy to the states, he also urged the Prime Minister to enhance the Fiscal Responsibility and Budget Management (FRBM) limit from the present three per cent of five per cent. “It will allow States to raise more loans,” sources said. Rao also wrote a letter to the Prime Minister in this regard. While speaking reporters later, Rao said: “The USA released 10 per cent of the GDP into the system.
The Britain released 15 per cent of the GDP. The GDP of the country is `203 lakh crore and if the Centre releases five per cent of the money into the system it will be around `10.15 lakh crore.”Asked about the diverse views on the helicopter money, Rao said: “There is no other alternative before the country.”
Rao also wanted the Prime Minister to take an initiative to impose at least six months moratorium on the loan instalments to be paid by the State governments.
He suggested that the a task force of Union Ministers under the chairmanship of Prime Minister should be constituted to study and decide the economic policies in the wake of lockdown implemented to tackle Coronavirus. He also suggested that agriculture should be linked with NREGS for two months, so that the farmers would pay 50 per cent wages to agriculture labourers and the remaining 50 per cent wages could be paid through NREGS.
The Chief Minister suggested to give three months food grains to the people in advance so that the godowns would be emptied and the fresh crop could be stored in FCI godowns. Rao also informed the Prime Minister that the State gave guarantee for `25,000 crore loan to Civil Supplies Corporation. “The Civil Supplies Corporation will get money from Food Corporation of India (FCI) only after four to five months time, after the procurement of the paddy. Till then the bankers should not insist on Civil Supplies Corporation to repay the loan amount,” Rao requested the Prime Minister.
What is helicopter money?
- Helicopter money is nothing but giving more money to individuals, private institutions and even to State governments
- Helicopter money or ‘helicopter drops’ of money refers to a non-standard monetary policy and is used in deflationary conditions
- The interest-free distribution of additional money to private sector will increase the consumption and help more investments
- The helicopter money will come through the implementation of Quantitative Easing Policy by changing the existing fiscal policy
- In the Quantitative Easing Policy (QEP), the RBI allows State governments to raise more borrowings
- Government may announce tax holidays or rebates under QEP
- The RBI will buy back bonds from the State governments
- The RBI may also print extra currency notes to generate helicopter money
- If 5 per cent of the `203 lakh crore GDP is released as helicopter money it comes to around Rs 10.15 lakh crore