Business Standard: RBI, Money Creation, and Government Finances
( This article appeared in Business Standard on 24th February 2026, link below: https://www.business-standard.com/opinion/editorial/rbi-money-creation-and-govt-finances-why-non-bank-debt-will-matter-ahead-126022301222_1.html ) RBI dividends and bond purchases have kept yields low in a low-inflation environment. When conditions change, non-bank debt financing will be essential ---------------------- Alongside helping navigate monetary policy, liquidity, and currency and bond markets, record open market operation (OMO) bond purchases and dividend transfers of the Reserve Bank of India (RBI) have helped the government’s fiscal arithmetic, while keeping yields low. Moderate inflation has made all this possible, though with implications for the external balance. What happens when the cycle turns? Money creation There are four ways through which money supply (M3) is created, across currency in circulation, and banking demand and time deposits. First, when a bank extends a commercial loa...