Centre sitting pretty on Rs 48k-cr cushion

MUMBAI: The government is sitting on over Rs 48,000-crore surplus cash parked with the Reserve Bank of India (RBI)—a pointer to robust growth in advance taxes that could result in fasterthan-expected fiscal consolidation.

The latest data released by RBI show that the central government had deposits of Rs 48,394 crore on December 18, the bulk being revenues that have come into its coffers because of advance tax payments by corporates and individuals, which is common towards the end of a quarter.

Though the government often parks its revenue receipts with the central bank as it is the banker to the state, this time the unspent revenues with RBI are higher than usual. Advance tax receipts this quarter were 20% higher, according to finance ministry figures.

Economists point out that the government is likely to manage its finances better than was envisaged in the early part of the year and the surplus parked with RBI is one indicator of this.

Citi’s Rohini Malkani has said in a recent report that the recent revision of India’s sovereign ratings from stable to positive by ratings firm Moody’s can be interpreted as a signal that the credit agencies are hopeful of government reforms that would lead to marked fiscal consolidation.

RBI’s bulging coffers also mean that the liquidity situation is comfortable. RBI deputy governor Subir Gokarn had recently said the central bank had adequate cushion to manage liquidity because of surplus funds parked with it by banks and unspent government revenues.

The average daily surplus funds parked by banks with RBI for most of the current fiscal have been around Rs 100,000 crore as demand for credit has not picked up at the pace most banks had envisaged earlier in the year.

This surplus has been shrinking in the past few days as companies have withdrawn money to make advance tax payments. But these have found their way back to the central bank, adding to its liquidity cushion.