Recently I criticised the cost of money inflicted on electricity consumers by the Power Finance Corporation. I mentioned that India has always been and can always be self sufficient in electricity and that forcing us to pay six Rupees per kWh to foreign rentiers is shameful.

The same is true for food and money. The purpose of the constitution is to create the conditions for self-sufficiency in food and money as well as electricity in order to enforce fundamental rights. The fact that the Government has mismanaged agriculture, the Rupee and the power sectors, preferring that India be dependent on foreign and national robber barons in all three sectors, is cause for grave concern and arguably unconstitutional.

It is very unhelpful for example that the Union Power Minister RK Singh has shifted the responsibility for electricity tariffs to the States, saying the other day that

“Industrial power tariffs are currently at unviable rates of 7-8/unit. This is hurting the Make in India initiative and the overall growth of power demand. I will reverse the trend of discoms putting burden of power theft and its own inefficiency on paying consumers through higher tariffs. I am telling the states that the permissible loss to be considered for determining power tariff should not be more than 15%. You (discoms) either find ways to stop the thefts or ask your states to subsidise, but don’t pass through to consumers. This will restrict tariff rise for regular consumers.”

Considering it is because the Union does not provide money at zero coupon on perpetual time basis that we have doubling if not tripling of power tariffs let alone Non-Performing Assets in the power sector, – the Union’s policy of forcing the PFC amongst others to raise money abroad that is raising the cost of money alone in power tariffs to Rs 6 per kWh -, it is pretty steep of the Minister to dump the responsibility for dealing with the Union’s mistake on the States. The States after all are not the sovereign and have no legal power to alter the conditions of money creation in the country. The suggestion by the Minister is not a solution to the tariff crisis in the power sector at all but is just kicking the ball out of the Unions court into a court where no one can play.

If the present dispensation were really interested in a Make in India policy it would kick off the Make in India policy with a Make Rupee in India policy first and foremost.

It is the contention of this author that Government of India should create EcoDevelopment Banks for agroecology and electricity based on a Make Rupee in India policy of self-sufficiency in money.

It can be implemented provided the likes of RK Singh and others including the Prime Minister Narendra Modi understand that banks are not intermediaries of loanable funds but creators of money; and therefore the Government of India can within the existing laws ask banks to create as much GDP as we want, without even upsetting the misguided but for the time being apparently unquestioned fiscal deficit limit of 3 or 4% of GDP at all.

It bears emphasising that 91% of money in India is bankmoney. 70% of it is created by Public Sector Banks (PSBs). Not only demonetisation but also the recapitalisation of the PSBs brought the issue of who creates money and for what purpose to the fore in the public consciousness. We are keenly taking an interest in the Government’s political economy, to say the least. The Fiscal Responsibility and Budget Management Act 2003 (FRBMA2003) has outlawed Government of India borrowing from the RBI, apparently because we are supposed to keep the public debt under control. But the Act is based on the logically wrong understanding of the role of the public debt, for which the Union is responsible under Seventh Schedule article 246, the Union List, para 35. Under para 45 it is in charge of Banking, under 36 Currency, and so on. The deficit is the difference between what the Union or State Government takes in from taxes and other revenues, called receipts, and the amount of money it spends, called expenditure or outlay. The items included in the deficit are considered either on-budget or off-budget. The total public debt of the Union and the States is accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the Government of India through the Ministry of Finance to borrow money to raise the cash needed to keep the Government operating. It borrows the money by selling Government securities to both public and commercial banks, which are by law obliged to buy them to the extent of 19.5% of their total deposits as per so-called Statutory Liquidity Ratio laws. Such outstanding Government Securities are then part of the total public debt. Now if the Union Government is no longer allowed to borrow from the RBI under FRBMA2003, we are perforce obliged to either ask existing banks to create new money by buying the Government securities, or set up new banks to create new money. But create money we must, and this money creation is prior and must as a matter of logic preceed tax collection. Thereafter outstanding Government Securities perforce become part of the public debt, without which we would have no Government money at all. Having understood how money is created by banks, let us set up EcoDevelopment Banks.

(i) EcoDevelopment Banks would be promoted by the Government of India and capitalised with zero coupon perpetual bonds the government would issue; (ii) The EcoDevelopment Bank would swap the zero coupon perpetual bonds with reserves the RBI would create (RBI reserves = Make Rupee in India). (3) These reserves would be used under CRR and SLR laws to make zero interest perpetual loans for example to Gram Panchayat to make and implement their Gram Panchayat Development Plans as proposed by Ministry of Panchayat Raj (MoPR).

The advantage of financing the five year Rupees 2 trillion MoPR budget in this way, and the Non-Performing Assets of Public Sector Banks as proposed by Dr. Sabri Oncu, the inaugural Head of Research at the Centre for Advanced Financial Research and Learning (CAFRAL), Reserve Bank of India, as well as the power sector as a whole and the agroecological sectors, is that it avoids the mistake of thinking we have to take the roundabout route of first financing the consumer capitalist model of development in order to collect taxes in order to have the revenues in order to make Government outlays. We need do no such thing. In order to collect taxes we must first create money. Thus we should build banks to directly create money. This will not upset the fiscal deficit laws, rather it would increase GDP. The measure also avoids importing money. It would put development back in the hands of agriculturists and rural and semi-urban people who make up 80% of the people of the country who are the most productive energy our country has but who cannot afford money that carries interest or money that has to be repaid. We agricultural workers are today in the worst possible personal physical health because of the burden of exploitation imposed by interest and repayments on money. Soils are depleted and forests and wetlands destroyed because we must sell biomass to pay interest and repayments. This situation can be remedied with money for wages from EcoDevelopment Banks.

EcoDevelopment Banks financed by zero coupon perpetual bonds are the alternative to the global and national free market exploitation of land, power and money in the service of foreigners and the industrial corporate rich, as adopted by the present dispensation. Unlike the proposal for so-called plain sovereign money, which I have written about earlier, EcoDevelopment Banks, like the Bad Bank proposed by Dr. Oncu for sorting out the NPA problem of PSBs, are implementable within the existing constitutional and legal framework of banking in India. EcoDevelopment Banks financed by zero coupon perpetual bonds can provide the ideal interest and repayment free money for agriculture and electricity in India today, keeping prices low.

By building an EcoDevelopment Bank the Government of India can finance agriculture and ecoinfrastructure projects in agriculture, forestry, wetlands and ocean clean up let alone Swatch Bharat for that matter, at no cost. It is just printing money or, rather, creating money as no printer is involved. It costs nothing to the government if zero coupon, perpetual bonds are issued for such banks. It will increase the money supply and can cause some inflation, but in any case the Government of India is already looking for new national and foreign money and in any case in India inflation is not directly dependent on money supply. Inflation is a structural problem in India. It is not demand driven, it is supply driven because of dependence on imported energy sources, raw materials and intermediate goods used in production. As ecodevelopment starts to kick in imported energy sources, raw materials and intermediate goods used in production may even reduce and with them inflation.

Anandi Sharan was born in Switzerland, lives in Bangalore and last year worked in Araria District Bihar, India. She works on trying to find the best money system to help people adapt to climate change especially in India.

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  1. K SHESHU BABU says:

    When demonetisation was announced, the paper currency printed till then became ‘ waste useless paper’ and the cost of printing was wasted. Again, new notes have been printed and the cost of printing has become a burden. All these costs are being recovered from taxpayers – especially lower sections – while the industrial barons like Mallya or Adani or Ambani escape all this drudgery with their ways of escapism …

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