Dealing with RBI's policy dilemma

Separation of public debt management from monetary policy is necessary for resolving conflict between two competing policy objectives

In the absence of evidence on revival of private sector investments, the strategy of the latest Budget is a government capital expenditure-led process to kick-start the post-pandemic growth cycle. This is expected to “crowd-in” private investment in the medium term. The increased government expenditure will be funded by a larger public borrowing programme, carried out by the government’s debt manager, the Reserve Bank of India (RBI).

Are there risks inherent in this strategy? How can they be mitigated? The RBI was established in 1934. Like many central banks of its times, in the early years of the Indian republic, the