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Reserve Bank decided to reduce the Ways and Means Advances (WMA)

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Reserve Bank decided to reduce the Ways and Means Advances (WMA)

Recently, the Reserve Bank of India (RBI) has reduced the limit of ways and means advances (WMA) for the states.

  • In view of the improvement in the situation arising out of the Kovid epidemic, the RBI has reduced the ways and means advances (WMA) limit for states and union territories from Rs 51,560 crore to Rs 47,010
  • Keeping in mind the uncertainties related to Covid-19, RBI had increased the limit of WMA in the year
  • Under the RBI Act 1934, RBI makes available Ways and Means Advances to the Center and the States in the form of temporary advances.
  • Ways and Means Advances are made available to meet any difference in the total receipts and total payments of the government.
  • For Wages and Means Advances (WMA), the state/central governments have to pay interest linked to the repo rate.
  • WMAs are not part of the Fiscal Responsibility and Budget Management Act (FRBM), as they are paid within the year.

There are two types of WMA:

  • Normal and Special: While Normal WMAs are clear advances, special WMAs or Special Drawing Facility (SDT) are provided against the collateral of government securities held by the state.
  • When the states have spent the SDF limit, they get the normal WMA. Apart from WMA, overdraft facility is also provided to the states. But this facility is available when the financial requirement of a state exceeds its SDF and WMA limits.
  • There is a state-wise limit on the amount of funds that can be availed through WMA. These limits depend on factors such as the state’s total expenditure, revenue deficit and fiscal position. The limits of WMA are mutually decided by the government and RBI. It is amended from time to time.

Source – The Hindu

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