The government on Monday said the financial system has a surplus liquidity of about Rs 1,00,000 crore (Rs 1 trillion) in the system due to huge foreign exchange flows and the proposed special purpose vehicle for infrastructure development could raise resources from the domestic market.
Reserve Bank of India's liquidity adjustment facility has absorbed over Rs 40,000 crore (Rs 400 billion) and the Market Stabilisation Scheme has issued securities of over Rs 60,000 crore (Rs 600 billion), Economic Affairs Secretary Rakesh Mohan said addressing a CFO Summit organised by Confederation of Indian Industry in Mumbai.
There was no shortage of resources in the system and the lowest point for excess funds has been Rs 85,000 crore (Rs 850 billion) in the last 14 months, Mohan said.
The SPV, proposed in the Union Budget for financing large road, port and airport projects, could raise funds at competitive rates with 100 per cent government guarantee, and in turn lend them to projects for a long term basis, he added.
It was not necessary to use foreign exchange reserves for the SPV but could be used to import capital goods, he said, adding that for every dollar bought by the Reserve Bank of India, an equivalent amount of Rupee resources are released in the system.
On borrowings by the state governments, the secretary said their market borrowings are likely to be lower due to relatively better financial conditions but clarity would emerge only after having a look at full details.
Mohan said more resources would be available to states due to large grants from the Government of India, an outcome of the 12th Finance Commission's recommendations and reduction in the size of repayment for Centre's loans.
About 40 per cent of small savings would also be available for the state governments. Earlier, these funds were used for repayment of government debt, he added.
On the government move to remove limits on the Statutory Liquidity Ratio and Cash Reserve Ratio, he said this would give Reserve Bank of India more independence in the conduct of monetary policy.
The move (removal of limit on SLR and CRR) would potentially release large resources for banks to deploy them for productive purposes, he added.
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