Revenue shortfalls in India, the major economy hardest hit by the COVID-19 pandemic, are likely to force the Centre to borrow more, but it will only consider monetising its deficit as a last resort, sources familiar with discussions told Reuters<\/em>.<\/p>\n Borrowing plans for the second half of the financial year, will be reviewed by government and Reserve Bank of India (RBI) officials later this month, the five sources said.<\/p>\n The officials have already discussed the possibility of monetising the debt, whereby the central bank prints money to bridge the fiscal deficit, but they were in no hurry to return to a bad habit India kicked in 1997.<\/p>\n \u201cThere will definitely be higher borrowing in the current year but whether we will print money, that is not yet decided. We will have to have patience and see how things go,\u201d a senior official said. A senior government official said debt monetisation was \u201cnot the preferred option right now\u201d.<\/p>\n \u201cWe have seen what some of the countries have done in this regard, but we think that such a move would be the last resort for us,\u201d the official added. Aside from potentially harming India\u2019s credit rating, monetisation carries inflation risks.<\/p>\n The senior government official said the RBI could ease liquidity through open market operations to keep yields in check while helping the government to raise borrowing, already targeted at a record \u20b912 lakh crore.<\/p>\n RBI has pumped in over \u20b911 lakh crore of liquidity into the market, helping to keep 10-year bond yields below 6% even as the government decided to borrow 70% more than last year as a result of the pandemic.<\/p>\n India has the second highest number of coronavirus cases with economic activity curtailed and government revenues severely hit.<\/p>\n Officials, however, are still pinning some hopes on raising revenue from the sale of state-owned firms even though they do not expect to meet the divestment target of over \u20b92 lakh crore. <\/p>\n \u201cThe dilemma over deficit monetisation is not unique to India,\u201d said Radhika Rao, economist with DBS. \u201cThe primary challenge is to communicate and ensure that this is a one-off pandemic-induced arrangement and not a recurrent financing line.\u201d<\/p>\n<\/div>\n