Spending by India’s federal government is likely to remain slower for a few more months, which may prompt more steps to infuse cash into the banking system, two sources familiar with the matter said on Tuesday.
Over the past three weeks, the government has announced three buybacks of short-term securities along with a change in the planned treasury bill borrowings for the next six weeks.
We see slow pace of spending till about August, said one of the sources, a government official who declined to be named as he is not authorised to speak to the media.
“We will take a call on further buybacks after the next auction but we do not want to carry too much cash on our books,” the source said.
The finance ministry did not immediately respond to Reuters’ email for comment.
India’s ongoing six-week long national election has led to slower government spending, leaving the banking system facing an average liquidity deficit of 1.2 trillion rupees ($14.41 billion) so far in May.
The government, meanwhile, has seen strong tax revenue due to a buoyant economy.
While the government could choose to cut borrowings, this is last option, said a second source aware of the government’s thinking, adding that options such as buybacks may be preferable for now.
A cut in borrowings can only be decided on when a new government is in place and the final budget for the year is presented, the first source said.
($1 = 83.2750 Indian rupees)
(Reporting by Aftab Ahmed and Swati Bhat; Editing by Varun HK)
