Market Stabilization scheme (MSS)

    Market Stabilization scheme (MSS) – is aimed to sterilize the excess money supply created due to foreign exchange inflows. Under MSS the RBI issues market sterilization bonds (MSBs) to withdraw excess liquidity. The proceeds from the Market Stabilization Scheme are held in a separate identifiable cash account by the government. The fund is appropriated only for the redemption of the treasury bills or dated securities issued under the MSS. In the usual case, T-bills or dated securities of the government are used to cover the fiscal deficit of the government. But in the case of the MSS, the proceeds can not be used by the government. The securities issued under the MSS represent net RBI liabilities with the government and is a part of public debt. The undesirable aspect of the MSS exercise is that the interest paid out on MSS bonds shall be beard by the government and is accounted in the budget. The interest payments for MSS securities represent the budgetary burden for ensuring price stability.