The RBI conducts Market Stabilisation Scheme to withdraw excess liquidity from the financial system. As a part of this exercise, the RBI issues government bonds or Market Stabilisation Bonds in the market. The proceeds (money) from MSS cannot be used as it should be kept idle to check inflation. At the same time, an interest payment is to be made to the bond holders. The interest payment burden is the undesirable element of the MSS exercise. Here, the government accommodates the interest payment expenditure under the budget account and spends money out of the budget. This dead expenditure is called referred as carrying cost of sterilisation.
