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Thanks to fears that if it spent all of what it received from disinvestment, spectrum auctions and buoyant taxes, it would only worsen inflation by adding to overall demand, the Government went slow on expenditure throughout the second half of 2010-11. Result: it is sitting on a mountain of cash of over Rs 30,000 crore today.
Most of it will melt away by the middle of April when pending disbursements to State Governments and others are made. But for the moment, the turkey has fattened.
Will this make the Central Government borrow less than the Rs 3.35-lakh crore it has budgeted for in 2011-12?
No such luck, say senior officials of the Finance Ministry and the RBI.
Au contraire, the Government could overshoot the net borrowing target of Rs 3.43 lakh crore because of higher food and fuel subsidy bills, economists said.
“Running deficits for the overall good is not bad,” says a senior Government economist. “But ways-and-means advances may come down for a while.”
Meanwhile, the RBI has been quietly grumbling about how, as the banker to the Government, all this cash is creating a cash management problem for it.
Many States are also running huge cash surpluses on the back of higher tax devolution, increased central grants and lower capital expenditure for projects.
On January 24, the RBI had said that “From end-May 2010, liquidity tightened on account of the monetary policy actions, which was exacerbated by autonomous factors such as large increase in government surplus with the Reserve Bank as well as the unusually high demand for currency on account of high inflation, increased asset prices and payments under government schemes such as Mahatma Gandhi National Rural Employment Guarantee Scheme.”
Meanwhile, banks have been seriously short of liquidity because the Government money has been sitting primly in RBI coffers.
Finance Ministry and RBI officials are likely to meet on March 25 to discuss the Government's borrowing programme.
The Finance Minister, Mr Pranab Mukherjee, had recently said that the Government borrowing for 2011-12 would be done in a non-disruptive manner, leaving enough room for the private sector to meet its resource requirements from the market.
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