ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Crunching the Liquidity Crunch

There has been an extreme tightening of liquidity in the money market since June, the result of both structural (a rapid growth in credit and a slower growth in deposits) and frictional (higher than anticipated receipts from the broadband auctions and large tax receipts) factors. The frictional factors could have been handled with better cash management practices by both central and state governments that are in harmony with debt management operations. In the absence of such an approach, merely separating the debt management function of the central government from the Reserve Bank of India may result in further complexities to both debt and monetary management functions. An alternative solution would be the creation of a "Debt Management Corporation" as a subsidiary of the RBI with shareholding by both central and state governments to handle debt management.


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