RBI Governor Raghuram Rajan has asked states to improve cash management flow and explore the option of raising funds through innovative debt instruments on the lines of inflation-indexed and sovereign gold bonds.
He stated this while addressing the annual Conference of State Finance Secretaries (SFS) here yesterday, a day before he made public his decision not to take a second term.
"The Governor stressed on the need for states to explore ways for better cash management, adequate information dissemination of state finances, pro-active engagement with investors and exploring the possibility of issuing innovative debt instruments on the lines of inflation-indexed bonds and sovereign gold bonds," RBI said in a statement today.
During the meeting, attended by finance secretaries of 28 states and Puducherry, Rajan presented a snapshot of the macroeconomic situation, including how RBI's efforts in the last couple of years have aided macro-economic stability in terms of softening of inflationary pressures and relative stability of the currency.
He also highlighted that with the real interest rates turning positive, the savers have benefited, adding that the sovereigns as issuers will need to be watchful in management of state finances.
Deputy Governor H R Khan said state development loans (SDL) assume greater significance in light of increased share of market borrowings to finance state fiscal deficits. He also dwelt on challenges the states face in view of large issuances, reduction in Statutory Liquidity Ratio (SLR) and elevated supply due to the to Ujwal DISCOM Assurance Yojana (UDAY) bonds.
On the issue of cash management, the Deputy Governor impressed upon the states to put in place a robust cash forecasting mechanism.
In this connection, RBI will prepare a compendium of best practices in cash management in consultation with all stakeholders.
Among other issues, the Conference also deliberated on the need for the states to adopt some of the best practices in debt management, diversification of investor base, elongating the maturity of issuances and easing redemption pressure.
For efficient debt management operations, the states were also asked to devise a medium-term debt management strategy, on the lines of the Centre.
It was decided to constitute a working group of select state finance secretaries, Finance Ministry officials and those from RBI to look into aspects relating to better monitoring and reporting of 'Contingent Liabilities of the States'.
Other issues that figured in the meeting included projected market borrowings of states for 2016-17, strengthening of Consolidated Sinking Fund/Guarantee Redemption Fund, migration of state government business receipt/payment to electronic mode and enhancing the outreach of the banking services in the country.
