On 28th June 2024, the Reserve Bank of India (RBI) announced that it has raised Ways and Means Advances (WMA) limit or financial accommodation for state governments and Union Territories (UTs) by 28%, from Rs 47, 010 crore (fixed in April 2022) to Rs 60, 118 crore and will come into effect from, 1st July, 2024.
- The WMA limit has been raised based on the recommendations made by the group formed by the RBI which comprises finance secretaries of various states to address the expenditure data of states for recent years.
Background:
i.WMA scheme was 1st introduced by Government of India (GoI) in 1997.
ii.In April 2021, RBI announced for the continuation of WMA limit to Rs 51, 560 crore for all states and UTs due to the prevalence of the COVID-19.
iii.RBI decreased the WMA limits to Rs 47, 010 crore for all states/UTs through special WMA, and Overdraft (OD) schemes were last reviewed and announced on 1st April, 2022.
- These changes were recommended by the Advisory committee on WMA to state governments, headed by Sudhir Shrivastava. The committee was formed by RBI in August, 2019.
Key Points:
i.RBI announced that Special Drawing Facility (SDF) availed by state governments/ UTs will continue to be linked to the quantum of their investments in marketable securities, issued by the Government of India (GoI), including Auction Treasury Bills (ATBs).
ii.RBI working group on Consolidated Sinking Fund (CSF) and Guarantee Redemption Fund (GRF) suggested that the maximum limit of SDF that can be availed by states/UTs against the investments held under CSF or GRF will be 50% of the lower of: outstanding balance of the funds as on the last date of the second preceding quarter, and the current balance held in CSF or GRF.
- Also, the maximum limit of SDF for investments held in ATBs will be 50% of the lower of: outstanding balance of the funds in ATBs (91/182/364 days) as on the last date of the second preceding quarter, and the current balance held in ATB.
Note: CSF and GRF are reserve funds held by state governments with RBI.
About WMAs:
i.These are temporary advances given by the RBI to the government to tide over any mismatch in receipts and payments.
ii.There are two types of WMA: Normal WMA are clean advances and Special WMA or Special Drawing Facility (SDF).
- The number loans given under the normal WMA is based on 3 year average of actual revenue and capital expenditure of state.
- While, SDF is available before the availing of WMA and is offered against the collateral of the government securities held by the state. The interest rate for SDF is 1% point less than the repo rate.
iii.WMA is mentioned under Section 17(5) of RBI Act, 1934 which authorizes RBI to lend to the centre or state governments subject to the repayment of loans within 90 days. Interest is charged at the existing repo rate.
- If WMA exceeds 90 days, it would be considered as an Overdraft (OD) i.e. interest rate on ODs is 2% points more than the repo rate.
Points to Note:
i.State Governments or UTs can avail the OD facility on 14 consecutive days.
ii.State Governments or UTs can be in OD for a maximum number of 36 days in a quarter.
About Reserve Bank of India(RBI):
Governor– Shaktikanta Das(25th Governor of RBI)
Headquarter– Mumbai, Maharashtra
Established- 1 April, 1935
