What if the RBI runs out of money?

When retired IAS officer Shaktikanta Das was appointed governor of the Reserve Bank (RBI), "Expectations from him were simple: steer the central bank back to the straight and narrow and don't protest about the finance ministry." The previous governor Urjit Patel resigned prematurely citing personal reasons, but everyone was aware of his differences with the government regarding autonomy of the RBI and protecting the reserves the RBI has built up over the decades and which the government wanted to spend before general elections. At the time, the total reserves of the RBI was valued at Rs 9.6 trillion, while its foreign currency reserves amounted to Rs 26.4 trillion. Deputy Governor Viral Acharya also resigned after citing Turkey and Argentina in a speech, where governments interfered with their central banks with disastrous results. The government argued that the RBI is owned by the government and so it has a right to its reserves. Eventually, the RBI transferred Rs 1.76 trillion to the government in August 2019 on the recommendation of an expert committee. As governor, Das has reduced interest rate from 6.5% to 4.4%, injected liquidity of about Rs 7 trillion, reduced cash reserve ratio of banks to free up capital for lending, two tranches of $5 billion swap to provide foreign exchange to banks, reduced reverse repo rate to 3.75% to discourage banks from keeping excess cash with the RBI and Long Term Repo Operations (TLTROs) to help the government by boosting consumption and lending. Not working, prompting Das to say, "Monetary policy, however, has its own limits. Structural reforms and fiscal measures may have to be continued and further activated to provide a durable push to demand and boost growth." He is asking the government to spend more which will put more cash in people's hands. "The economy has been slowing for three years since 2017-18, following the demonetisation in late 2016," wrote Prof Pulapre Balakrishnan. The government must amend the Fiscal Responsibility and Budgetary Amendment Act (FRBM) of 2003, so that it can ignore fiscal deficit limits and vastly increase spending. An editorial in the Mint echoes the same sentiment. "Estimates of Rs 10 trillion needed by way of fiscal relief, once seen as too much by some, could yet turn out to be too little." SA Aiyer suggested that the RBI should print money to finance government spending. But, there is a danger of a credit rating downgrade if the government's debt balloons. The RBI is buying government debt from traders just after government sold it, which is surreptitious monetising of the deficit. Prime Minsiter Narendra Modi is known as a bold leader, not afraid to take decisions, such as the sudden demonetization of high denomination bank notes in November 2016. So, why is he so hesitant is declaring a large spending stimulus? Maybe he wants the RBI to hand over all of its reserves. That way the fiscal deficit and government debt will not rise. But can the RBI go broke, asked Andy Mukherjee. Possible.