The Reserve Bank of India (RBI) on April 7 announced an extension of interim ways and means advances (WMAs) limit of ₹51,560 crore to State governments till September, to help them tide over the financial stress posed by the second wave of COVID-19.
WMAs are temporary advances given by the RBI to the States to tide over any mismatch in receipts and payments.
There are two types of WMA — normal and special. While normal WMA are clean advances, special WMA are secured advances provided against the pledge of the Government of India dated securities.
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In addition, RBI has enhanced the aggregate WMA limit of States and Union Territories (UTs) to ₹47,010 crore per year.
"We have decided to accept the recommendations of an Advisory Committee constituted by the Reserve Bank to review the Ways and Means Advance [WMA] limits for State governments/UTs and other related issues," RBI Governor Shaktikanta Das said while announcing the first bi-monthly monetary policy of this fiscal.
Accordingly, it has been decided to enhance the aggregate WMA limit of States and UTs to ₹47,010 crore, an increase of about 46% from the current limit of ₹32,225 crore which was fixed in February 2016, he said.
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Further, he said, "it has also been decided [as per the committee suggestion] to continue the enhanced interim WMA limit of ₹51,560 crore granted by RBI due to the pandemic for a further period of six months i.e., up to September 30, 2021." Acting as the debt manager of the State governments, the RBI’s WMA are intended to provide a cushion to the States to carry on their essential activities and normal financial operations. These increased limits are expected to help State governments spend on fighting the fallout of COVID-19.
As per the RBI rules, normal WMA limits are based on a three-year average of a State's actual revenue and capital expenditure, and withdrawals beyond the limit is considered an overdraft. States pay interest linked to the repo rate on WMA withdrawals.