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What are Ways and Means Advances
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).
When was Ways and Means Advances introduced?
The Ways and Means Advances scheme was introduced in 1997.
Purpose of the WMA scheme
The Ways and Means Advances scheme was introduced to meet mismatches in the receipts and payments of the government.
How does it work?
The government can avail of immediate cash from the RBI, if required. But it has to return the amount within 90 days. Interest is charged at the existing repo rate.
If the WMA exceeds 90 days, it would be treated as an overdraft (interest rate on overdrafts is 2 percentage points more than the repo rate).
What is WMA limit?
The limits for Ways and Means Advances are decided by the government and RBI mutually and revised periodically. For the second half of the 2019-20 financial year, RBI set Rs 35,000 crore as limit for Ways and Means Advances.
Types of WMA
There are two types of Ways and Means Advances — normal and special.
Special WMA or Special Drawing Facility 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.
The number of loans under normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.
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