Hardening of yields: Increased reliance of Centre and States on market borrowings led to an oversupply of Government paper in the G-Sec market and contributed to hardening of sovereign yields. This results in a spiral, whereby increased market borrowings result in increasing redemption pressures which induces further borrowing to service outstanding debt and accumulated interest burden.
For some, this idea is seen as a way of avoiding financing constraints – it is seen as holding out the offer of a free lunch of sorts. The central bank, unlike any other institution, is able to create money and the resource cost of creating that money is negligible.