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Spending by the central government witnessed a sharp decline in the second half of 2012-13. It has parked Rs 81,759 crore with the RBI for safe-keeping as of March 2013, a sharp deviation from the usual practice of maintaining a minimum cash balance of Rs 100 crore with the RBI.
The rise in the government’s cash deposits with the RBI corresponds to steps taken to reign in the burgeoning fiscal deficit. The deposits witnessed a significant jump to Rs 20,867 crore in October 2012, but fell to Rs 10,684 crore in the subsequent month. In December, they jumped to the year’s high Rs 82,560 crore and have remained above Rs 40,000 crore since, reflecting lower government spending.
As a consequence of the government curtailing expenditures, liquidity in the monetary system has been constrained. Liquidity conditions had eased in the first half of the fiscal, with average repo borrowings of Rs 72,000 crore. This was close to the RBI’s comfort zone. But in the second half, the borrowings shot up to an average Rs 98,000 crore per month.
The other factors resulting in tight liquidity were advance tax payments and a spurt in credit demand toward the end of the fiscal year.
>arvind.jayaram@thehindu.co.in
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