Details on Ways and Means Advances

The Ways and Means Advances (WMA) programme is a mechanism that the Reserve Bank of India (RBI) uses as part of its credit policy to provide to states that bank with it in order to assist them in overcoming temporary mismatches in the cash flow of their receipts and payments. This programme known as the Ways and Means Advances (WMA) window is designed for the sole purpose of bridging short gaps in the cash flow resulting from mismatches between cash collections and cash payments.

The Reserve Bank of India (RBI) recently announced that the Ways and Means Advances (WMA) limit of state governments would be increased by 60 percent over and above the level as of March 31. This was done with the intention of enabling state governments “to undertake COVID-19 containment and mitigation efforts” and “to better plan their market borrowings.” Additionally, the RBI stated that this would help state governments “to better plan their market borrowings.

Characteristics of Ways and Means

In the event that quick cash is required, the RBI is able to make it available to the government. However, the sum must be returned within a period of ninety days. The interest rate is calculated based on the current repo rate.The RBI Act of 1934, Section 17(5) gives the central bank the authority to lend to both the central government and state governments on the condition that the loans must be repaid “not later than three months from the date of the making of the advance.”The Repo Rate is the interest rate at which the Reserve Bank of India (RBI) lends banks money for short-term use.In the event that the WMA goes above 90 days, it will be considered an overdraft (the interest rate on overdrafts is 2 percentage points more than the repo rate).The government and the RBI work together to determine on the limitations for WMA (for the Centre), and these limits are periodically subject to revision.With a larger limit, the government has the freedom to raise cash directly from the RBI rather than having to borrow money from the market.

The Two Different Kinds of Ways and Means Advances

The standard and enhanced variations of WMA are both available. 

Special Working Capital Advances (WMA) are secured advances made against the pledge of the government of India–dated securities, in contrast to Normal Working Capital Advances (WMA), which are unsecured advances. The operative limit for special WMA for a state is contingent upon the state’s holdings of dated securities issued by the central government, up to the maximum amount that has been sanctioned.In addition, the RBI has set restrictions for regular and special WMA for each state based on multiples of the mandated minimum amount that is required to be maintained with the RBI by that state. These limits apply to both normal and special WMA. These restrictions have undergone repeated reviews and amendments.These are short-term advances (overdrafts) that the Reserve Bank of India has provided to the government. In accordance with Section 17(5) of the RBI Act, the RBI is authorised to make WMA payments to both the Central and State Governments. The purpose of these payments is to close the gap that exists between expenditures and receipts.They are not a source of financing but are meant to provide support for difficulties that are purely temporary and arise as a result of a mismatch or shortfall in revenue or other receipts for the purpose of meeting the obligations of the government. These difficulties can arise as a result of a lack of revenue or other receipts. They need to be modified on a regular basis in order to make it possible to employ such financing for any future shortfalls. Following the signing of an agreement between the Government of India and the Reserve Bank of India (RBI) on March 26, 1997, the ad hoc T-bills system was discontinued as of April 1, 1997.

WMA Limit

As a result of the financial situation improving, the Reserve Bank decided on Friday to cut the Ways and Means Advances (WMA) for states and Union Territories from Rs 51,560 crore to Rs 47,010 crore.The previous amount was Rs 51,560 crore.WMAs are short-term advances that are provided to the government by the RBI in the event that there is a discrepancy between the government’s receipts and payments.As a result of the numerous unknowns surrounding COVID-19, the Reserve Bank of India (RBI) increased the WMA limit for all states to Rs 51,560 crore.The more stringent WMA was in effect until the 31st of March in 2022.The Reserve Bank of India also stated that the Special Drawing Facility (SDF) that is made available to state governments and UTs will continue to be linked to the amount of money those entities have invested in marketable securities that have been issued by the government of India, such as Auction Treasury Bills (ATBs).The amount of Rs 1,50,000 crore has been decided upon as the maximum for WMA for the Government of India for the first half of the financial year 2022-2023.

The Full Form of WMA

The Reserve Bank of India (also known as the RBI) provides the central government and the state governments with facilities for short-term loans. This type of financing option is known as Ways and Means Advances (WMA).1997 was the year that saw the beginning of the Ways and Means Advances programme.

Conclusion

The WMA limit for the first half of the fiscal year 2020-21 (April to September), which applies to the Central Government, has been set at Rs 120,000 crore.This is an increase of 60 percent compared to the limit of 75,000 crore rupees for the same length of time in 2019-20. The limit was set at Rs 35,000 crore for the second half of the previous fiscal year, which ran from October to March. Up till March 31, 2020, the total WMA limit for the states was set at Rs 32,225 crore.On April 1st, the RBI made an announcement that this limit will be increased by thirty percent; since then,it has been increased by sixty percent, bringing the total up to rupees 51,560 crore. The increased restriction will be in effect until the 30th of September. The number of consecutive business days that a state can be in an overdraft was increased from 14 to 21 by the central bank on April 7. Additionally, the number of business days in a quarter that a state can be in an overdraft was increased from 36 to 50.