Published: 27th July 2021
What the FAQ: Can India just print more money to tide over this economic crisis?
If more money is printed it will shoot up the demand, possibly increase the economic output, may reduce inflation and will definitely increase overall purchasing power
Finance Minister Nirmala Sitharaman on Monday said that the government has no plans to print money to tackle the current economic crisis caused due to the coronavirus pandemic. We take a spin around the rules governing the printing of money and why the government can or cannot do it at will.
Where is India's money printed?
The Currency Note Press in Nashik prints banknotes for the Government of India. Printing of banknotes of a particular denomination is done in consultation with the Reserve Bank of India (RBI).
Can a government print more money to tide over a financial crisis?
Deficit financing happens when governments spend more by borrowing or minting more money to increase liquidity in the economy. The government may use the acquired cash to revive the economy by investing and spending. This is done by, for example, building infrastructure which in turn creates jobs for many. It may also be done by direct cash transfers to the poor who will then spend it.
Is this a viable solution to revive the economy?
What we definitively know is that printing more money will increase the amount of cash circulating in the economy. At the moment, the factories in the country are producing below capacity because many do not have the purchasing power given the job losses during the pandemic. If more money is printed it will shoot up the demand, possibly increase the economic output, may reduce inflation and will definitely increase overall purchasing power. Although, for this to work, it absolutely is important that money pumped into the economy goes to those who need it and not those who already have a higher purchasing power.
Is there a downside to printing money to offset a crisis?
However, critics of the idea say that it may lead to a sharp rise in inflation if the high economic demand remains unmet. Critics predict that there might be a sharp increase in prices of existing goods and services as the demand will rise, but supply won’t. Printing more money may also cause a decline in currency value due to higher inflation.
How many notes have we printed in the recent past?
In March this year, the government said in the Parliament that Rs 2,000 banknotes have not been printed in the last two years. The Reserve Bank of India (RBI) had in 2019 said that 3,542.991 million notes of Rs 2,000 were printed during the financial year 2016-17 (April 2016 to March 2017). However, in 2017-18, only 111.507 million notes were printed, which further reduced to 46.690 million notes in the year 2018-19.