Govt's cash balance surges, banks starve
elections have thrown up a problem of plenty for the government — its cash balances are much higher than before the previous two Lok Sabha polls, but curbs on spending mean that banks are parched of funds while the Centre tries hard to prevent the money from sitting idle.
The adoption of more efficient fund management practices by the Centre, healthy tax collections and a build-up of cash by state governments have resulted in overall government cash balances swelling past ₹3 lakh crore and locking out funds from the banking sector.
As a result of the constraints on spending during a long-drawn national election, government expenditure — which traditionally flows through banks — has moderated, leading to a tight money market and, consequently, higher borrowing costs.
«Government cash surplus — Centre-plus-states — is currently tracking at ₹2.5 lakh crore as on May 17, which is significantly higher than the same period last year at ₹1.4 lakh crore as of May 19, 2023,» said Gaura Sengupta, chief economist at IDFC First Bank. «In FY20, which was the last general election year, overall government cash surplus was lower at ₹40,000 crore as of May 17, 2019.»
The government's cash balances have likely crossed the ₹3 lakh crore mark after the latest round of goods and services tax (GST) collections.
As of May 16, 2014, just a few days after the general elections that year, the cash balance of the Centre and states was at a deficit of ₹94,000 crore, implying that government expenditure was in full swing.
The matter
