Govt hikes WMA limit with RBI by 60%; frontloads borrowing
The government Tuesday increased the ceiling on its temporary loan facility with the Reserve Bank of India — known as Ways and Means Advance (WMA) — by 60 per cent to tide over the cash flow mismatch in FY21 expected from higher spending to combat the spread of COVID-19.
- Announcing the government’s borrowing plan for April-September period, Department of Economic Affairs (DEA) Secretary said the “WMA limit is proposed to be revised to Rs 1.20 lakh crore and would be reviewed on a need basis (from Rs 75,000 crore last year).”
- The WMA facility enables the government to take a temporary short term loan from the central bank, mainly to address the mismatch between its inflow of revenues and outflow of expenditure.
- A higher limit provides the government flexibility to raise funds from RBI without borrowing them from the market.
- Out of gross borrowings of Rs 7.8 lakh crore in FY21, the Centre has proposed to borrow Rs 4.88 lakh crore, or 62.56 per cent, in the first half of the fiscal, as against 62.25 per cent done in the previous fiscal.
- The Budget 2020-21 has pegged the Centre’s net market borrowing — including government securities, treasury bills and post office life insurance fund — at Rs 5.36 lakh crore.
Ways and means advances (WMA)
- The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to government. This temporary loan facility is called Ways and Means Advances (WMA).
- It is a mechanism to provide to States to help them tide over temporary mismatches in the cash flow of their receipts and payments.
- It was introduced on April 1, 1997, after putting an end to the four-decade old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit.
- This facility can be availed by the government if it needs immediate cash from the RBI. The WMA is to be vacated after 90 days.
- 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.