State government’s expenditure pattern displays a distinct back-loaded concentration, which surges in February and March, when departments expedite project execution, an article on government finances in RBI’s November Bulletin noted.
What’s driving this decision?
This bunching up is the result of flow of funds from schemes under grants and departments clearing pending bills at the last minute to avoid lapse of funds. The sharp spike in spending in these final months, especially in capital expenditure, intensifies liquidity pressures, often compelling states to rely on short-term borrowing.
What does the report say?
The report underlines that with regular cheaper borrowing facilities such as special drawing facilities and ways and means advances nearing exhaustion, several states resort to overdraft mechanisms to bridge temporary cash gaps.
“This reinforces the need for smoother intra-year expenditure calibration to reduce reliance on temporary borrowing facilities,” the article underlines.