With the RBI announcing the release of huge funds to the Union Government, the Modi dispensation can heave a sigh of relief. This comes at a time when the economy is facing odds, the high growth rates have come down, a liquidity crisis has gripped the nation, and the overall outlook seemed grim. The statement by Niti Aayog vice chairman Rajiv Kumar that the government is faced with a serious cash crunch has added to the nation’s worries. For now, however, the RBI decision to provide the government with a Rs 1.75 lakh crore bonanza should change the scenario for the better, at least for the short term. It will now be incumbent on the government to work hard, act in concert, and effect changes in policies and performances in ways as to ensure things do not go out of hand.
The RBI decision is based on the recommendations of a panel it had set up to consider the matter. However, it looks like the government was expecting as much. The fund that the RBI now granted to the government is seen to be exactly the same as the gap left behind by finance minister Nirmala Sitharaman in her budget presentation in the last parliament session – the gap between revenue and expenditure. The shortfall has now been made up. At the same time, the Centre resorting to such help-taking from RBI, or the LIC from which it took huge funds in recent times in a similar fashion, means the economy is ailing overall. Finance minister says the economy is going slow, but faring better than those of China and even the US. This, by itself, should be small comfort. It is well-known that the Demonetization and GST rollout had adverse effects on the economy.
On the positive side, the government has some relief that a big sum has come into its hands. This might help it to retain the fiscal deficit level at 3.3 per cent, as against the 3.4 per cent in the last fiscal. Money supply in market, out of what the government now laid its hands on, should rev up the infra spend and the like, which should help in pumping in as much money to the markets. A safe assumption is that this should help the economy to an extent and create more job opportunities. Also, the infusion of Rs 70,000 crore to the public sector banks, as announced by the finance minister last week to face the liquidity crisis, should help.