Lockdowns may have dented the government’s revenues, but there’s a positive side too.

The central government’s cash balance with the Reserve Bank of India was estimated at Rs 4.2 lakh crore in the week ended May 21, according to QuantEco, a Mumbai-based research firm. This was the highest since demonetisation, cooling fears that market borrowings may not spike.

The fears of additional borrowing due to GST shortfall may not be as substantial as bond dealers anticipated initially. Any large additional borrowing announcement would have triggered a spike in the yields. This time it didn’t.

North Block last week proposed to borrow Rs 1.58 lakh crore to fund the shortfall in cess collections, which will be used to compensate states under the goods and services tax rules. This is in addition to the borrowing scheduled for the whole fiscal year.

The surplus cash balance of Rs 4.2 lakh crore can take care of six-seven weeks of New Delhi’s budgeted expenditure for this financial year.

During a similar period (week ended May 22) last fiscal year, the central government was in a cash deficit with the Mint Road for Rs 86,100 crore. Even after adjusting the RBI’s Rs 57,100crore dividend to the Centre, the gauge was still in overdraft mode for Rs 29,000 crore.

“The difference is quite stark, demonstrating the Centre’s improved ability to spend this year,” said Vivek Kumar, an economist at QuantEco. “There is a lot of parked rupee liquidity that will become available as the government steps up spending. This is likely to be comforting for yields despite build-up of input price inflation pressures.”

“It potentially creates room for extra spending if required to support the economy, without creating a fear of additional market borrowing as of now,” he said.

The benchmark bond yielded two basis points higher to close at 6.02% Monday. When bond yields rise, prices fall. In the whole of May, the gauge has hovered around 6%, a psychological level.

The RBI has been trying to manage the benchmark yield amid signs of worsening economic conditions.

“The high government cash balance has comforted the market that the Centre need not borrow urgently,” said Anand Bagri, head of domestic markets at

. “Benchmark yields hence did not surge the way a lot of people were expecting it to react on the news of substantial additional borrowing.”

“We expect things to come back to normalcy with resumption of government spending and increase in tax revenues post the relaxation in localised lockdowns,” he said.

New Delhi is expected to resume spending on building infrastructure once the initial crisis, sparked off by the second wave of infection, subsided.

The banking system has a net durable surplus of about Rs 4.12 lakh crore, with the supply of securities increasing. New Delhi plans to borrow a gross Rs 12.05 lakh crore this fiscal year. More than half of this is planned to be raised between April and September this year.

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