RBI to hike ways and means advances limit for states by 46%

MUMBAI: The Reserve Bank of India (RBI) on Wednesday said it has accepted recommendations of a committee to hike borrowing limit for states under Ways and Means Advances (WMA) by 46%, and to continue for another six months the higher limits announced last year.

The increase in WMA limits allows states to meet targeted expenditure commitments in the absence of revenue flows and the resurgence of the pandemic.

The central bank had set up an advisory committee in August 2019 to review the Ways and Means Advances (WMA) limits for state governments and union territories and examine other related issues. The committee, RBI said on Wednesday, has recommended an overall revised limit of Rs47,010 crore for all states, as against the current limit of ₹32,225 crore, fixed in February 2016.

That apart, the committee has also recommended the continuation of the enhanced interim WMA limit of Rs51,560 crore, allowed by the RBI during the last fiscal to help states and union territories tide over the difficulties faced by them during the pandemic, till 30 September.

"The Reserve Bank has accepted both the recommendations," it said.

RBI, as the banker to central and state governments, provides financial accommodation to tide over temporary mismatches in the cash flow of their receipts and payments as WMA. Acting as the debt manager for state governments, RBI’s WMA are intended to provide a cushion to states to carry on with their essential activities and normal financial operations. The increased limits are expected to help state governments spend on fighting the impact of covid-19.

According to 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.

Meanwhile, the RBI kept interest rates unchanged on Wednesday, as was widely expected, and also maintained its accommodative monetary policy amid concerns that rising coronavirus infections could derail nascent economic recovery.

The RBI kept the repo rate or its key lending rate at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%.