The results of the latest auction of gilts reveal the problem of
liquidity in the market. One does not understand why the auction was conducted
when government deposits in RBI should be large due to the advance tax
payments. Surprisingly, deposits of the Centre with the RBI, as on September
13, 2013, were at the stipulated minimum of . 1 billion. RBI has the procedure
to invest government surplus deposits in gilts in its portfolio. Government
should follow the principle of just-in-time inventory management pioneered by
the Japanese industry. Unlike in the case of industry, where there is a lead
time before getting the materials, the government can get immediate money from
the RBI by accessing the ways and means advances facility in case of necessity.
RBI should lower the marginal standing facility rate by 25 basis points
and roll back the increase in repo rates. It should also raise the monetary
ceiling on repos by 25 basis points. As the RBI governor pointed out, the CRR
maintenance requirement does not really ‘bite’. Then why is it prescribed? It
could be withdrawn. The kharif marketing season is starting and there will be
credit demand for the movement of the bumper crops. This is the time to effect
some relaxation in policy measures.
ET
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