WAYS AND MEANS ADVANCES ( WMA)

WAYS AND MEANS ADVANCES ( WMA)

CONTEXT:

• With the ending of FY23 ended, an RBI release said that “in consultation with the (Central) Government, the limit for Ways and Means Advances (WMA) for the first half of the financial year 2023­-24 (April 2023 to September 2023) will be ₹1,50,000 crore.

ABOUT WAYS AND MEANS ADVANCES:

• WMA is short-­term credit (up to three months) provided by the RBI to both Central and State governments to bridge a temporary mismatch in their cash flows.
• The procedure is as laid down in terms of Section 17(5) of the RBI Act, 1934.
• As such, WMA is not a resource to finance government expenditure.
• WMA to the Centre was re­introduced on April 1, 1997 after a period of four decades when the system of ad hoc treasury bills was abolished.
• Currently, WMA limits are fixed at ₹1,50,000 crore for the first half of FY24.
• The interest rate on WMA is repo rate i.e., 6.5 per cent.
• When the WMA limit is crossed, the Central government enters into an overdraft (OD) which has to be cleared within 10 consecutive working days.
• The interest rate on OD is currently the repo rate plus two per cent.

WMA FOR STATE GOVERNMENTS:

• For State governments, WMA (since 1999) has been formula­based with a committee approach.
• In other words, periodically an expert committee fixes the WMA limits and overdraft regulations.
• Contrary to this, the WMA to the Central government is arbitrarily fixed in a non­transparent manner by the Centre and the RBI.
• This raises questions on the integrity of the interface between the monetary authority and the fiscal authority.
• As the evidence reveals, there is no defined process in the fixation of WMA limits.
• Sometimes it is quarterly, and at other times it is half ­yearly.

FINDINGS OF RECENT RELEASE BY RBI:

• The release essentially reflects the government’s poor cash management.
• The Centre’s Annual Financial Statement corroborates this.
• In 2017-­18, 2018-­19 and 2019­-20, the WMA receipt and expenditure limits in the actual figure exceeded sharply from the Budget Estimate.
• To elaborate, for 2017­-18, receipts for WMA (actuals) were ₹4,80,042 crore as against Budget Estimates of ₹3,00,000 crore. Similarly, in 2018­-19, receipts for WMA actuals was ₹9,55,243 crore as against a Budget Estimate of ₹5,00,000 crore.
• Furthermore, in 2019-­20, receipts for WMA (actuals) were ₹11,79,582 crore as against Budget Estimates of ₹5,00,000 crore.
• These proportions are much higher than that suggested by the expert committees for State governments which were in the range of 2.9 per cent and 4.1 per cent.
• We, thus, considered 4 per cent as the proportion of total expenditure for fixing WMA limits.

WHAT NEEDS TO BE DONE:

• The RBI and government should consider the following:

(a) an expert committee on the similar line of the State governments for fixing WMA limits and overdrafts;

(b) a monetary limit on the overdraft;

(c) the RBI press release should explicitly provide the current position of availment of the overdraft ;

(d) the RBI and the government should consider publishing the WMA data along with the overdraft position in the RBI bulletin to ensure data transparency.

SYLLABUS: PRELIMS, INDIAN ECONOMY