Ways and Means Advance (WMA) is a temporary finance facility provided to Government of India by RBI
to accommodate temporary mismatch in the government’s receipts and payments. This is not a permanent source of financing the government’s deficit. The WMA scheme was introduced by RBI with effect from 1st
April, 1997. With this scheme, the old age practice of financing the budget
deficit through system of ad hoc Treasury Bills came to an end.
Period of Ways and Means Advance
When government runs short of cash, the WMA is provided by RBI for period of 90 days. When limit of WMA is crossed the overdraft is provided to the government for periods not exceeding ten consecutive working days.
Interest on Ways and Means Advance
The interest rate on WMA/overdraft is:
- WMA: Repo Rate
- Overdraft: Two percent above the Repo Rate
States ways and Means Advance
The Reserve Bank of India as a banker to state government provide temporary finance to tide over temporary mismatches in the cash flow of their receipts and payments as WMA. The temporary finance to states is provided in three ways:
- Special Drawing Facility (SDF): The SDF is provided against GoI securities including Auction Treasury Bills (ATBs). The interest rate on SDF is charged at repo rate of RBI.
- WMA: The WMA is provided to state after it has exhausted its quota of SDF. The interest rate on WMA is charged at repo rate of RBI.
- Overdraft: The overdraft is given after state has exceeded its limit of WMA. A State can be in overdraft for 14 consecutive working days with not more than 36 working days in a quarter. The rate of interest on overdraft is 2 per cent above report rate if Overdraft is used up to 100 per cent of WMA limit. In case Overdraft is used above 100 per cent of WMA limit, rate of interest is 5 per cent above report rate.
- The Reserve Bank of India, in consultation with the Government of India, has decided that the limits for Ways and Means Advances (WMA) for the first half of the financial year 2019-20 (April 2019 to September 2019) will be Rs 75000 crore.
- The WMA quantum for states works out to Rs 32,225 crore as per revised formula in 2016.
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