Posts tagged ‘Liquidity Deficit’

Monthly Liquidity Monitor – December 2013

Read my note on liquidity for December.

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Monthly Liquidity Monitor – November 2013

Read my note on liquidity  for November.

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Central Government’s M-o-M Income Expenditure Analytics

Expenses Numbers
Income Numbers
Government expenditure pattern note:
• Govt. expenditure in months preceding the advance tax outflows is comparatively less that is why liquidity deficit persists for a time period until and unless govt. deploys and pour in the system.
• Govt. expenditure is comparatively very high in March as funds allotted to ministries are deployed at the last moment. It was observed that major decisions and spending clearances are done/taken in last week of March to consume the spending target of the year.
• We can also note that Standard Deviation of Govt. expenditure on proportionate basis is very low which says govt. is quite consistent as far as its spending is concerned.
• Govt. has been asking the ministries to spend uniformly across the uniformly across the year. Hence from last few years spending in months like Jun, Jul, Aug, Feb has increased.

Government Income pattern note:
• Advance tax inflows during March, June, September and December contribute nearly 55-65% of government’s budgeted revenue.
• Again here as well SD of Govt. income on proportionate basis is very low which says govt. income is quite consistent. This consistency (on proportionate basis) helps asset managers and bankers to configure their liquidity model with optimum accuracy.
• Advance taxes are collected in four installments — 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.

If you have something more on this than do add your comments.

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Core Liquidity Deficit

Liquidity management in the system is one of the important function of RBI. RBI uses LAF window to either suck or pump liquidity from/in the market. Repo is the rate at which Banks borrow from RBI and Reverse Repo vis-a-versa. Net LAF borrowing (i.e. Repo borrowing amount less Reverse repo lent amount)(lets assume Rs.50) + MSF borrowing(Rs.20) + Term repo(via RBI)(Rs.20) borrowing + borrowing under standing liquidity facility(SLF)(Rs.10) gives one a holistic view over liquidity. Liquidity deficit for above case will be 50+20+20+10 = Rs.100

Now, coming to our topic of core liquidity deficit. Core liquidity deficit is Liquidity deficit calculated using aforesaid calculation less Govt. balance with RBI. Let’s say total borrowing of banks from LAF/MSF/Term Repo/SLF is 100rs and balance of Govt. lying idle with RBI is 20rs than core liquidity deficit will be 80rs(100-20) as Rs.20 is presumed to be back into the system soon by way of Gov. spending. Normally soon after the advance tax outflows systemic liquidity deficit rises but core liquidity deficit is not affected. For e.g. Liquidity deficit before advance tax was 50rs. Now soon after the advance tax payments of Rs.20 liquidity deficit rose to 70rs (50+20). Now we all know this 20rs of advance tax flow will find its way into Government’s account. Hence Core liquidity deficit will be 70rs (liquidity deficit) – 20rs (Govt. balance with RBI) i.e. 50rs.

Actual numbers for advance tax outflows ranges from 400-650Billion depending upon economic activities quarter of payment. During economic boom this number may come at higher level as business activity would have been more whereas during recessionary period amount collected would be comparatively low.

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