High tax refunds are the cause of India’s current cash crunch, so the Indian government will provide for its funding needs by issuing cash management bills until June, according to a senior finance ministry official on Friday.
Cash management bills are a non-standard short term borrowing instrument that lasts less than 91 days that were introduced in August 2009 to help the government make up for a short term cash crunch. The finance official explained that for the financial year that started on April 1, the government has so far sold 260 billion rupees worth of cash management bills, and has paid 270 billion rupees in tax refunds in April.
The government had expected to borrow just 300 billion rupees between April 1 and April 20 but for the week ending April 15th it was much higher at 506 billion rupees. The government is required by the ways and means advances facility to use auctions and bonds to repay the Reserve Bank of India if its borrowing is more than 75% of the limit.
Citi on Wednesday said India’s fiscal deficit target, which the finance official was 4.6% of gross domestic product for the year, may not hold, explaining “while the [government’s] revenue and growth assumptions appear realistic, the expenditure numbers appear optimistic”.