The Indian economy is bracing for another bout of tight liquidity over the next two weeks, as a host of factors lead to an outflow of funds from the banking system. Advance tax and GST payments, higher leakage of currency ahead of the election and a gap in credit and deposit growth could lead to a cash crunch and force the central bank to step-in with more liquidity soothing measures, senior economists and market experts told BloombergQuint.
At present, while liquidity is in deficit, the gap is small was at about Rs 31,200 crore, as on March 13. This deficit could rise sharply to over Rs 2 lakh crore over the next two weeks. To be sure, a large part of this deficit, created by tax outflows, will likely prove to be transient. According to market participants, the math could look something like this:
- About Rs 1.3 lakh crore to Rs 1.5 lakh crore would flow out on account of advance tax payments.
- Another Rs 90,000 crore would need be paid in the form of GST.
- These seasonal outflows will come atop a pre-election increase in currency in circulation and a gap between deposit growth and credit growth.