The Reserve Bank of India (RBI) on Wednesday announced an extension of interim ways and means advances (WMAs) limit of Rs 51,560 crore to state governments till September, to help them tide over the financial stress posed by the second wave of COVID-19.
What is WMA?
These are temporary advances given by the RBI to the states to take over any mismatch in payments. It is formulated in two forms, one being normal where clean advances are issued while the second on being special provides an advance against pledge of the government of India dated securities.
How much is the WMA increased?
A 46% increase from the current limit of Rs 32,225 crore is announced to all States and UTs. Around Rs. 47,010 crore per year is finalized as the WMA. 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. Furthermore, it is also announced that the Central Bank will also be issued a WMA of Rs 51,560 crore by the RBI due to pandemic for a period of six months.e., until September 2021. Portraying a debt manager of the state governments, the RBIs WMA is intended to support the states to revive the economy.
TPT Policy Advocacy and Recommendation
- As the WMA window is intended only for an interim period, it is highly doubtful that this short-term loan will prove sufficient to states to balance the economy. However, it is expected to step up emergency funding to meet the exigencies arising out of COVID-19 only.
- The government will have to revive Section 5(3) of its Fiscal Responsibility and Budget Management Act 2003. The overriding provision in the Act allows the Central Bank to” subscribe to the primary issues of Central Government securities” under very specified grounds. Apart from monetization of deficit, the RBI will have to undertake increased secondary market purchases and sales of Central as well as state government securities