States parking their excess fund with Centre

At a time when market borrowing by state governments has risen to unprecedented levels, states have been parking huge amounts of funds with the Centre, a finance ministry official said. "More and more states are parking excess funds with us (Centre) through T-bills," the official told Cogencis. According to data as on Aug 25, states had an outstanding investment of 2.42 trln rupees in treasury bills issued by the central government, up 44% from a year ago.

In fact, state governments may have continued to park funds with the Centre. Their holdings of marketable T-bills, which do not include 14-day T-bills, have increased by 206 bln rupees since Aug 25. Data for 14-day T-bills, in which states park the bulk of their funds, is not available beyond Aug 25.

The spike in states' holdings of T-bills comes at a time when states have increased their market borrowing substantially. As on Oct 24, states borrowed 2.01 trln rupees from the market in 2017-18 (Apr-Mar), up 32.4% from the same period last year. Interestingly, the surge in surplus funds with state governments coincides with the launch of the goods and services tax from Jul 1.

T-bill holdings of state governments as on Jul 1 were up 16% from a year ago, and on Mar 31, these were down 1.7% on year. This is despite a few state governments facing a liquidity crunch under the new indirect tax regime.

The spike in states' holdings of T-bills comes at a time when states have increased their market borrowing substantially. Till Oct 24, states borrowed Rs 2.01 trln from market