The world economic experts suggest for “Helicopter Money” to handle economic setbacks due to COVID – 19 outbreak

It is a non-repayable money transfer from central bank to the state and central governments

• The world expert economists suggest going for “Helicopter Money” to handle economic setbacks due to COVID – 19 outbreaks
• Telangana Chief Minister K. Chandrashekar Rao has suggested RBI to adopt the concept of Helicopter Money to help state governments amidst COVID – 19 crises
• Helicopter Money means extension of non-repayable money transfer from the central bank to the state and central governments

What is “Helicopter Money”?

• This is an unconventional monetary policy tool aimed at bringing a flagging economy back on track. It involves printing large sums of money and distributing it to the public
• American economist Milton Friedman coined this term. It basically denotes a helicopter dropping money from the sky
• Friedman used the term to signify “unexpectedly dumping money onto a struggling economy with the intention to shock it out of a deep slump
• Under such a policy, a central bank “directly increases the money supply and, via the government, distributes the new cash to the population with the aim of boosting demand and inflation

Background for “Helicopter Money” in Indian news

• The policy is being actively considered by governments’ world over to help revive the economies that have come to a stand-still due to the lockdown
• In Indian context, the term came to limelight after Telangana Chief Minister
• Chandrashekar Rao suggested the measure as a way out to restart the dwindling Indian economy due to COVID-19 lockdown
• He has asked RBI to release 5% funds from GDP as a measure of Quantitative Easing (QE). He also added that “”To counter (economic crisis) this we need a strategic economic policy
• RBI should implement quantitative easing policy. This is called Helicopter Money. This will facilitate the states and financial institutions to accrue funds
• India can come out of the financial crisis by releasing 5 per cent of funds from the GDP through Quantitative Easing Policy
• Confederation of Indian Industry (CII) has also recommended a similar arrangement in which a direct cash transfer of Rs.5,000 will be made by the central government in to accounts of all adults who have annual income below Rs 5 lakhs
• The industry body also recommended that the cash transfer for more vulnerable sections including senior citizens can be raised to Rs.10,000
• The body recommended this move as a one-time measure to boost demand in its action note on COVID-19 submitted to PMO

What is “Quantitative Easing (QE)”?

• It is a monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to add money directly into the economy
• An unconventional form of monetary policy, it is usually used when inflation is very low or negative and standard expansionary monetary policy has become ineffective
• A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other financial institutions
• Thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply.

Pic courtesy : google.com