Informist, Friday, May 14, 2021

By Adrija Chatterjee

NEW DELHI — Cash holdings of state governments fell to a six-month low of 2.13 trln rupees at the end of April, suggesting that many of them dipped into their substantial cash piles to meet expenses, data from the finance ministry showed. 

According to the monthly summary report of the expenditure department, treasury holdings of state governments at the end of April fell by 360 bln rupees from a month ago.

Cash holdings of state governments at the end of April were, however, substantially higher than a year ago when it had fallen to a multi-year low of 1.78 trln rupees after the central government imposed a nationwide lockdown to curb the spread of coronavirus infections.

Last month, Informist had reported that the sharply lower borrowing by states in April may be due to them dipping into their cash surplus.

States borrowed 91.50 bln rupees in April, accounting for just 19% of 486.50 bln rupees projected for borrowing during the month.

The gross borrowing by states in April was nearly 85% lower than 592.55-bln-rupee borrowed in April last year.

According to CARE Ratings, the lower quantum of borrowing by states could be due to lower spending.

Some states could also be availing the financial accommodation provided by the Reserve Bank of India through special drawing facility, and ways and means advances, which are cheaper than market borrowing costs, according to CARE.

State governments and Union territories are scheduled to borrow 1.78 trln rupees in Apr-Jun from the market, as per the indicative calendar.

State governments typically invest their cash surplus in intermediate treasury bills or auction treasury bills of the central government.

In fact, investments by state governments in treasury bills account for the cash surplus held by the central government.  End

Edited by Michael Correya

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