The government’s cash balances have nearly halved in about a month to Rs 2.3 lakh crore as it accelerates spending on infrastructure. Higher federal spending, though potentially inflationary, should boost economic growth that fell below even the central bank’s forecast last quarter.
Cash balances with the government were at Rs 2.3 lakh crore on September 1, compared with Rs 4.2 lakh crore on July 29, showed central bank data compiled by
Research. The gauge was at Rs 5.1 lakh crore on July 1.
“Clearly, there has been a tendency for the government to progressively start spending as per budget which has brought these balances down,” said Madan Sabnavis, chief economist, Bank of Baroda.
“While this may put pressure on inflation on the demand side, the central bank is well poised to manage it through policy tools.” “With the June quarter growth falling short of projections, the focus is now to ramp up growth as well," he said.
The Reserve Bank of India (RBI) projected the real GDP growth for 2022-23 at 7.2%, with April-June quarter at 16.2%, showed data from its policy document dated April 8. India’s GDP expanded 13.5% in the June quarter of FY23.
Sector-wise growth exhibited broad-based pickup barring government consumption, according to a report by Morgan Stanley. So, the September quarter is expected to show higher government consumption.
“Spending by the government will release money into the system," said Soumyajit Niyogi, director at India Ratings. “This will reduce the gap between surplus durable liquidity and surplus in the banking system.”
“However, sustained pressure from BoP (Balance of Payment) deficit or frictional volatility owing to monthly tax payment will continue to create volatility in the system," he said.
Meanwhile, the surplus cash in the banking system was at Rs 1.43 lakh crore on September 1, compared with `3.26 lakh crore at the beginning of July. High levels in July could also be attributed to advance tax payments. Advance taxes are generally paid by July 15. These balances are treated as surpluses until they are spent.
The Open Magazine of India by Artmotion Network (https://magazine.armotion.com/)