The seduction of MMT.

Swaminathan Aiyar, with a masters degree in Economics, said that the Indian government should forget about fiscal deficit and just print money to stimulate the economy. "I would say just print money. In other words, the government should have extra borrowing, financed entirely by the Reserve Bank of India printing money. This will be a once and for all huge explosion of the fiscal deficit, so be it," he said. This thinking has been around for sometime and is known as the Modern Monetary Theory  (MMT). Advocates of MMT say that governments of the US, UK, Canada and Japan can print any amount of money without fear of inflation. The theory was developed by American economist Warren Mosler who made a profit of $100 million in the 1990s when Italy did not default on its debts as people feared. Supporters of this theory say that taxes and government borrowing are ways of draining excess liquidity from the system and keeping inflation in check. MMT does not apply to emerging market countries, said Prof Larry Summers which could see a situation "where people could buy two drinks at bars at one time to avoid hourly price increases". The inflation rate in the US in the year ending February 2020 was 2.3%, while retail inflation in India was 6.58% in February, down from 7.59% in January. India has one of the highest income tax rates in the world, for which taxpayers get no returns such as pensions or healthcare, and excise duty on fuel was raised by Rs 3 per liter following collapse in price of crude oil, with Brent crude at $27.95, while West Texas Intermediate (WTI) is at $21.51 per barrel. Prime Minister Narendra Modi announced an almost complete lockdown in India so that people are not allowed to go out except to buy food and medicines. This means that very few vehicles are running, which means that sales of fuel have plummeted, thus reducing tax collection. Malls and restaurants have been shut down bringing goods and services tax (GST) collections to almost nothing. States in India collect revenue from taxes on alcohol, fuel, aviation fuel, stamp duty on real estate sales and on sale and registration of automobiles. Alcohol shops have been shut so no taxes there. International flights had been suspended earlier and now even domestic flights have been stopped. The central government is supposed to share GST collections with the states but with collections down there is little in the pot to share. The US has passed a bill to spend $2 trillion which is 10% of its GDP, while India is spending just 0.5-0,8% of GDP to help its people, which is pathetic says Aiyer. Perhaps, India is looking over its shoulders at Venezuela. Economists say that when something appears too good to be true, it definitely is. Aiyer should know.