Government parks Rs 51k-crore with RBI, adds to liquidity crunch - The Economic Times
MUMBAI: The Union government's deposits with the Reserve Bank of India have risen to over Rs 50,000 crore even as it is holding back on expenditure and blocking liquidity at a time when other banks are borrowing more from the central bank to meet their daily requirements.
As per the latest data, the government had parked Rs 50,931 crore with the RBI at the end of December 2013. The sum comprises mostly of the unspent advance tax receipts that tend to get bunched at the end of a quarter.
Although it is not unusual for the government to park unspent revenue with the RBI, experts say it is not the right thing to do when the government is grappling with fiscal constraints and banks have been borrowing at 7.75% to meet their daily requirement of liquidity.
The government does not earn any interest income on the money parked with the central bank.
This trend has gained strength after 2008 since when the government's fiscal deficit started widening. The central government's fiscal deficit for April-November 2013 soared to 94% of gross domestic product, up from 84% accrued by October 2013, raising doubts on the ability of the government to meet its annual target. If the current rate persists for the rest of the current fiscal, the shortfall could exceed the target by at least 40%, according to estimates by DBS Bank.
"How things are managed over the next four months will be crucial," Radhika Rao of DBS Bank said, adding, "But it is clear that without remedial action, the 2013-14 deficit is poised to exceed the target of 4.8% of GDP by at least 50 percentage points."
The repercussions of non-action are severe since rating agencies monitor developments closely.
Subdued growth coupled with weak investment environment and the upcoming Lok Sabha elections lower the scope of fresh taxes or aggressive tax collection methods. Yet, experts say, the government is unlikely to compromise on social spending
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
As per the latest data, the government had parked Rs 50,931 crore with the RBI at the end of December 2013. The sum comprises mostly of the unspent advance tax receipts that tend to get bunched at the end of a quarter.
Although it is not unusual for the government to park unspent revenue with the RBI, experts say it is not the right thing to do when the government is grappling with fiscal constraints and banks have been borrowing at 7.75% to meet their daily requirement of liquidity.
The government does not earn any interest income on the money parked with the central bank.
This trend has gained strength after 2008 since when the government's fiscal deficit started widening. The central government's fiscal deficit for April-November 2013 soared to 94% of gross domestic product, up from 84% accrued by October 2013, raising doubts on the ability of the government to meet its annual target. If the current rate persists for the rest of the current fiscal, the shortfall could exceed the target by at least 40%, according to estimates by DBS Bank.
"How things are managed over the next four months will be crucial," Radhika Rao of DBS Bank said, adding, "But it is clear that without remedial action, the 2013-14 deficit is poised to exceed the target of 4.8% of GDP by at least 50 percentage points."
The repercussions of non-action are severe since rating agencies monitor developments closely.
Subdued growth coupled with weak investment environment and the upcoming Lok Sabha elections lower the scope of fresh taxes or aggressive tax collection methods. Yet, experts say, the government is unlikely to compromise on social spending
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
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