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Journalism of Courage
The government needs to increase spending as its high cash balances are putting a strain on monetary supply,RBI Governor Duvvuri Subbarao said today.
8220;We are deeply conscious of the liquidity situation,8221; Subbarao told reporters after a meeting of the RBI8217;s Central Board here.
The RBI had said that the Liquidity Adjustment Facility LAF window should be calibrated to within /- 1 per cent per cent of net demand and time liabilities NDTL,which translated into Rs 50,000 crore.
8220;However,we saw that in the last 45 days,injection under LAF was higher than that8230; Yesterday,it was Rs 1,27,000 crore,8221; he said.
This,he said,was due to structural and frictional factors.
He cited higher credit offtake than deposit growth as being the key structural factor for the increased borrowing by banks,but added that the situation was gradually improving.
With respect to the frictional factors,he said the government was sitting on huge cash balances due to higher-than-expected revenues from the auction of 3G and BWA spectrum,disinvestment and increased indirect taxes collections.
8220;Yesterday,the government cash balance stood at Rs 92,000 crore,8221; he said.
8220;We expect the government to spend and reduce the cash balance and ease the liquidity position. Although the government is spending,it is not enough,8221; he said.
He said the RBI was studying the issues and would take the necessary steps.
