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What is Helicopter Money and how it can help RBI to revive Indian Economy from COVID-19 crisis?

Helicopter Money Explained: Amid rising concerns over economic crisis that has been triggered by the COVID-19 lockdown; Helicopter Money is one concept that is being considered by authorities world over? But what actually is Helicopter Money and how it can help manage the current COVID-19 pandemic, Let’s Find Out!

Apr 13, 2020 11:33 IST
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Helicopter Money Explained: Amid rising concerns over economic crisis that has been triggered by the COVID-19 lockdown; Helicopter Money is one concept that is being considered by authorities’ world over? In fact, Telangana Chief Minister K. Chandrashekar Rao has suggested RBI to adopt the concept of Helicopter Money to help state governments tide over the current crisis and kickstart economic activity in India. While, the word ‘Helicopter Money’ has been doing regular rounds in the news, very few people actually know what does it mean.

So let’s try and decode what actually is Helicopter Money and how it can help manage the current COVID-19 pandemic!

What is Helicopter Money?

According to media reports, the term Helicopter Money was given by American Economist Milton Friedman in his famous “The Optimum Quantity of Money”. By definition, Helicopter Money is a monetary policy tool for Quantitative Easing (QE), which aims at "unexpectedly dumping money onto a struggling economy with the intention to shock it out of a deep slump.”

How will Helicopter Money help Indian Economy?

Simply put, Helicopter Money means extension of non-repayable money transfer from the central bank to the state and central governments, to infuse liquidity in the system. The policy aims at putting more money into the pockets of people to nudge them to spend more money and in turn pick-up economic activity in the country.  The direct impact of Helicopter Money is rise in disposable incomes of the people, increase in money supply with an intention to boost demand and inflation in the economy.

Why is Helicopter Money in News?

As reported earlier, the term helicopter money has found frequent mention in news stories and editorials nowadays, in both domestic as well as foreign media news publications. 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 CM K. 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). KCR 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. We can come out of the financial crisis. Release 5 per cent of funds from the GDP through Quantitative Easing Policy."

Apart from Telangana CM, Confederation of Indian Industry(CII) has also recommended a similar arrangement in which a direct cash transfer of Rs 5000/- 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 10000/-. The body recommended this move as a one-time measure to boost demand in its action note on COVID-19 submitted to PMO.

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