Govt's move on fund transfer to states led to spike in bond yields

Sudden surge in supply of state paper caused turmoil in market, catching observers off-guard

Last year the Union Finance Ministry changed the dates on which it periodically transfers to states their share in central taxes.

The conventional practice was to transfer funds on a monthly basis. Instead, the Centre had decided, it would from April 2018 (when the new financial year began) be transferring the states’ share in direct taxes on a quarterly basis.   

Transfers from Centre are a significant proportion of state revenue. So, the change created a cash management problem for states - they would have to find their own resources for spending, till the central transfer at the end of