Four months into the current fiscal year, the central government appears to be facing a short-term cash flow discrepancy. Apart from scheduled borrowings, the government has increased the limit on advances from the central bank and is resorting to raise short-term funds via cash management bills as well.
On 10th July 2018, the government raised Rs 20,000 crore via an auction of cash management bills (CMBs) with a maturity of 70 days, according to a statement by the Reserve Bank of India. Since the beginning of this financial year, the government has already borrowed four times using CMBs, which is typically used to tide over short-term cash flow mismatches.
Apart from raising funds, the RBI has also raised the limit for ‘Ways and Means Advances’ to the government. These are interim advances given by the RBI to government to tide over a discrepancy in receipts and payments. For the April-June 2018 quarter, the limit for such proceeds was set at Rs 60,000 crore. This has been raised to Rs 70,000 crore for the July-September quarter.
The short-term funds borrowed via cash management bills and advances from the central bank are in addition to the scheduled borrowings via government bonds and Treasury bills. The government had said it plans to borrow Rs 2.88 lakh crore from the markets in the first half of this financial year. Straying from precedent, the government had chosen not to front-load its borrowings this year to calm yields in the government bond markets.
Budgetary data available for the first two months of the year shows that the deficit until May 2018 stood at Rs 3.45 lakh crore. It is 55.3 % of the targeted Rs 6.24 lakh crore in 2018-19. The April-May gap was lower than the 68.3 % seen in 2017-18.
The government had resorted to borrowings via cash management bills last year too. Between April-June, it raised nearly Rs 1.4 lakh crore via these short-term instruments. So it is pretty evident that the Government needs to work on managing its funds and ensure that it requires.
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