The Reserve Bank of India (RBI) on 30 September 2020 set the ways and means advances (WMAs) limit at Rs 1.25 lakh crore for the central government for the second half of the fiscal year. WMAs are temporary advances given by the RBI to the government to tide over any mismatch in receipts and payments. It has been decided, in consultation with the Government of India, that the limits for ways and means advances (WMA) for the second half of the financial year 2020-21 (October 2020 to March 2021) will be Rs 1,25,000 crore.

 

What

  1. The central bank further said it may trigger fresh floatation of market loans when the government utilises 75 per cent of the WMA limit.
  2. The Reserve Bank retains the flexibility to revise the limit at any time, in consultation with the Government of India, taking into consideration the prevailing circumstances.
  3. The interest rate on WMA is equal to the repo rate and on overdraft, it is two per cent above the repo rate. The current repo rate is 4 percent.
  4. Meanwhile, the finance ministry said the government will borrow Rs 4.34 lakh crore in the second half of the current fiscal to meet its expenditure requirement amid the COVID-19 crisis afflicting the country's economy.
  5. With this, the government will stick to the revised borrowing target of Rs 12 lakh crore borrowing for the current fiscal. The government revised the borrowing target to Rs 12 lakh crore in May as against Rs 7.8 lakh crore approved in the Budget 2020-21.
  6. The RBI said that to help institutional and retail investors plan their investments efficiently, an indicative calendar for issuance of the government dated securities for the second half of the fiscal year 2020-21 has been prepared. It will also provide transparency and stability to the government securities market.

What is Ways and Means Advances (WMA)?

  1. It is a facility for both the Centre and states to borrow from the RBI.
  2. These borrowings are meant purely to help them to tide over temporary mismatches in cash flows of their receipts and expenditures. In that sense, they aren’t a source of finance per se.
  3. Section 17(5) of the RBI Act, 1934 authorises the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”.