Andhra, Telangana and Punjab frequently use RBI short-term liquidity windows


: Andhra, Telangana, Rajasthan and Punjab as well as three northeastern states repeatedly use the Reserve Bank’s special short-term liquidity windows instead of market borrowing, indicating their serious cash flow imbalances, according to a report.

The northeastern states that use these facilities again and again are Manipur, Mizoram and Nagaland.

The central bank offers three short-term liquidity windows – Special Drawing Facility (SDF; for 5 working days), Ways and Means Advances (WMA, for 5 working days) and Overdraft Facilities (OD, for 14 working days) States to meet their liquidity needs.

One of the main reasons states use these windows is to price cheaper than market borrowing. Through August, states used the SDF facility at an average rate of 3.2-4.2%, while government bonds are priced at 7.8% or higher.

A recent study by RBI identified 10 “vulnerable states” in terms of fiscal management – ​​Andhra Pradesh, Bihar, Haryana, Jharkhand, Kerala, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and Bengal.

According to economist Sonal Badhan of the Bank of Baroda, such repeated use of these facilities shows the deep cash imbalances of these states as well as the lack of fiscal discipline as they spend more than they earn, which is an indicator early in the overall situation. state of finances.

The RBI makes it clear that these three provisions for states “are intended to help them overcome temporary mismatches in the cash flows of their receipts and payments.”

The RBI report further notes, “The share of revenue expenditure in the total expenditure of these states ranges from 80-90%, with Rajasthan, Bengal, Punjab and Kerala spending around 90% of the revenue account. This translates into low spending quality, as evidenced in their high revenue spending to capital spending ratios.

“Although it improves welfare, the impact of revenue spending on economic activity lasts about a year. In contrast, the impact of capital spending is stronger and lasts longer, the maximum effect materializing after two or three years. In the medium to long term, states with high revenue expenditures and low capital investment may experience slower revenue growth and higher interest expenditures,” warns the RBI report.

Maharashtra, Assam and Karnataka use the SDF, Kerala uses the WMA, while the majority of northeastern states have been using the cash flow management facility systematically since August.

On average, Andhra and Telangana used Rs 712 crore and Rs 735 crore respectively under the sole SDF facility this financial year. Of the 153 days through August, those states used the SDF for 133 and 152 days respectively, she said.

The amount accessible via WMA is even higher, averaging Rs 1,773 crore for Andhra and Rs 1,206 crore for Telangana, and this all too regularly.

Even the OD facility, which is offered at rates higher than the repo rate, is used. Of the northeastern states, Manipur, Mizoram and Nagaland use all three facilities.

Another worrying trend is emerging from Rajasthan and Punjab, which also benefit from SDF funds for 110 and 90 days respectively, out of a total of 153 days. The average funds available to these two northern states are greater than those accessed by Andhra and Telangana.

In contrast, Gujarat, Tamil Nadu and Bihar have never or rarely used these cash management facilities since 2017 and even states like Odisha, UP and MP have very rarely taken advantage of them.

The RBI report specifically names Bihar, Kerala, Punjab, Rajasthan and Bengal as “highly stressed” in terms of debt to GDPR ratio and goes on to say that “states like Andhra, Bihar, Rajasthan and Punjab exceeded both debt and budget deficit”. FY21 targets set by the 15th Finance Committee”.

While Andhra pulled Rs 712 crore via SDF for 133 days, Rs 1,773 crore via WMA for 122 days and Rs 1,819 crore in OD for 51 days, topping the list, neighboring Telangana took Rs 735 crore in SDF for 152 days, Rs 1,206 crore in WMA for 138 days and Rs 851 in OD for 58 days – making these two most stressed and unruly states.

Manipur, Mizoram and Nagaland follow with Rs 16 crore (SDF) for 121 days, Rs 195 crore (WMA) for 137 days and Rs 261 crore (OD) for 75 days respectively; Rs 58 crore (SDF) for 42 days, Rs 74 crore (WMA) for 32 days and Rs 93 crore (OD) for 13 days; and Rs 109 crore (SDF) for 77 days, Rs 144 crore (WMA) for 55 days and Rs 96 crore in OD for 22 days.

The respective figures for Meghalaya are Rs 113 crore in SDF for 54 days and Rs 64 crore in WMA for 32 days.

But as for Rajasthan, it took Rs 3,146 crore from the SDF for 110 days and did not tap into the other two windows, just like Punjab with Rs 797 crore SDF for 90 days.

Against this, Haryana took Rs 343 crore in SDF for 13 days and Rs 457 crore in WMA for 5 days. The second largest borrower in the market, Maharashtra, took just Rs 1,960 crore through SDF for just 12 days. Kerala took Rs 147 crore out of SDF for 10 days and Rs 839 crore in WMA for 10 days, Karnataka only took Rs 176 crore out of SDF window for 9 days and Assam took Rs 144 crore out of SDF for 9 days.

Andhra, Telangana, Punjab and Rajasthan’s monthly budget accounts show revenues well below their total expenditures so far this fiscal year. This implies a greater reliance on loans/subsidies from the Center market.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)


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