The Reserve Bank of India (RBI) gives temporary loan facilities to the central and state governments. This loan facility is called Ways and Means Advances (WMA).
This scheme was introduced in 1997 to meet mismatches in the receipts and payments of the government.
The limit for these advances is mutually decided by the government & RBI & is revised periodically, usually half yearly.
FEATURES OF WAYS & MEANS ADVANCES
- They are temporary loan facilities provided by RBI to the government to enable it to meet temporary mismatches between revenue and expenditure.
- The interest rate for WMA is currently charged at the repo rate.
- The WMA is to be vacated after 90 days.
- If the WMA is extended for more than 90 days, it will be treated as an overdraft.
- The limits for WMA are mutually decided by the RBI and the Government of India.
TYPES OF WAYS & MEANS ADVANCES
There are 2 types of ways and means advances , namely –
- Special WMA or Special Drawing Facility : It is provided against the collateral of the government securities held by the state. After the state has exhausted the limit of SDF, it gets normal WMA. The interest rate for SDF is one percentage point less than the repo rate.
- Normal WMA : After the exhaustion of the special Drawing Facility limit , the State Government is provided a normal WMA. Time period of WMA is 90 days . The amount of loans under normal WMA are based on three year average of actual revenue & capital expenditure of the state.
EXISTING LIMITS FOR WMA
For the Centre : The WMA limit during the first half of 2020-21 (April-September) has been fixed at Rs 120,000 crore. This is 60% higher than the Rs 75,000 crore limit for the same period of 2019-20 .
For the State : The aggregate WMA limit was Rs 32,225 crore till March 31, 2020. On April 1, the RBI announced a 30% hike in this limit, which has now been enhanced to 60%, taking it to Rs 51,560 crore. The higher limit will be valid till September 30.
On 17th April, 2020, the RBI has announced a 60% increase in Ways and means advances limit to enable the states to tide over the crisis caused by COVID-19 outbreak.
Thus, in simple words WMA are short-term loan facilities which allow the Centre and states to borrow funds from the RBI to bridge their temporary mismatch between expenditure and receipts.