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Ways and Means Advances (WMA) reviewed: RBI reviewed its limits

  • IASbaba
  • April 2, 2020
  • 0
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Ways and Means Advances (WMA) reviewed: RBI reviewed its limits

Part of: GS Prelims and GS-III – Economy

In News:

  • Reserve Bank of India (RBI) has reviewed the Limits of Way and Means Advances for Center and States/UTs.

Key takeaways:

  • For central Government: Recently, The Government of India increased the ceiling on WMA with RBI by 60% to Rs 1.20 lakh crore (from Rs 75,000 crore last year) to tide over the cash flow mismatch in FY21 expected from higher spending to combat the spread of COVID-19.
  • For States/UTs: RBI had constituted an Advisory Committee (Chairman: Shri Sudhir Shrivastava) to review the WMA limits for States/UTs. Meanwhile, it has been decided to increase their WMA limit by 30%.

Important value additions:

  • Under Section 17(5) of RBI Act, 1934, the RBI provides Ways and Means Advances (WMA) to the central and State/UT governments.
  • It is a temporary liquidity arrangement with the central bank. 
  • It enables the centre and the states to borrow money up to 90 days from the RBI to tide over their liquidity mismatch between its inflow of revenues and outflow of expenditure.
  • A higher limit would provide the government flexibility to raise funds from RBI without borrowing them from the market.
  • WMA is not a security as it is not tradable.
  • Interest rate for WMA is currently charged at the repo rate
  • The limits for WMA are mutually decided by the RBI and the Government of India.

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