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RBI raises limit on ways and means advances, but states arent impressed

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April 17, 2020

The Reserve Bank of India (RBI) on Friday raised the limit of ways and means advances (WMAs) to states, which are, however, none too impressed by the move because it falls short of their requirements.

WMAs are short-term advances the central bank gives to help states tide over temporary mismatches in their cash flow. These are given at the repo rate, which is 4.40 per cent.

The RBI increased the limit by 60 per cent above the level as of March 31, 2020.

This new limit is available till September 30, 2020. Earlier, it had raised the same limit by 30 per cent in April.

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estimated the enhanced limit would be substantial at around Rs 51,600 crore. However, states said it was too piecemeal an approach.

West Bengal Finance Minister said the move was a step in the right direction, but it was far too incremental in nature.

“I would like to see a doubling of the limit and not just for WMAs. During these times of an unprecedented pandemic, the RBI too, has to go beyond its ‘lakshman rekha’ (limit) and come out of the crease and bat aggressively,” he said.

It is with this aggressive approach in mind that Mitra recalled that he wrote Union Finance Minister on March 30, requesting three urgent measures, not one.


The three measures he suggested were a moratorium on repaying all loans and interest for nine months, doubling the special drawing limit and WMAs for the next nine months, relaxing the number of days of restriction while availing of overdraft facilities from the current 36 to at least 60 days.

“Unfortunately only one — the limit of WMAs — has been met partially whereas the other suggestions have not yet been taken up,” he said.

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Given that states have hardly any revenue in these difficult times, relaxations in debt management are critical to state finances, he said.

Kerala Finance Minister said the RBI’s move was welcome, but that did not address the challenges faced by the state governments.

For example, in the case of Kerala, if you take the entire 60 per cent, it would amount to an additional temporary borrowing for Rs 1,400 crore, he pointed out. “It does not address the seriousness of the fiscal crisis of the state government. It is welcome, but when you hear it has increased by 60 per cent, people might think that it is a huge jump,” he said.

Punjab Finance Minister Manpreet Singh Badal said while the relaxation was fine, states were looking for some real help from the Central government. “We can have more money to borrow, but the short-term window to repay is not going to help, considering we are in a big crisis,” he said.

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He quoted Winston Churchill’s famous saying — now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning — to buttress his point.

Assam Finance Minister said while he was happy with the relaxation, it was not sufficient.

States are expecting more from the Centre, including an increase in the fiscal deficit limit and a moratorium on repaying loans and interest, he said.

He added that WMAs were used to manage short-term cash balance situation, which most states don’t like to resort to.

“It is a short-term window, so we do not like to use that. Even special drawing rights we have not used for the last 9-10 years. In fact, most states have forgone this provision long time back. But because of Covid we have have to get back to it,” said Sarma.

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However, Gujarat said that the RBI’s measure was timely. “This will help states in planning relief and rehabilitation measures. It will also provide financial cushion for the states to undertake efforts for energising state economy,” Gujarat Chief Minister said.

He said states are facing uncertainty in revenue collection due to the stressed economic conditions in the Covid-19 situation.

States are required to undertake immediate mitigation measures in response to Covid-19, he said, adding increased the WMA limit will help in meeting the temporary mismatch between state revenue and expenditure.

A Tamil Nadu official said the RBI’s announcement would mean a marginal difference to the state. This would mean Rs 750 crore additional accommodation for its temporary financial requirements, he said. “It cannot be considered as a big boost given the overall needs of the State. The revenues are dried up and how this has to be managed is to be seen,” the official said.

Senior Vice-President Jayanta Roy said he expected a higher recourse to the WMA facility, especially by those states that have been relatively badly affected by the Covid-19 health crisis and those with a higher proportion of daily wagers or migrant workers, as such states’ immediate spending requirement would be very high.

States will find the fixed rate of 4.4 per cent required to be paid on WMA outstanding, attractive in relation to the higher state development loan yields that the market participants are likely to demand, he said.

Ranen Banerjee, leader economic advisory services at PwC, said the enhancement of WMA limit will provide immediate cash in the hands of states to undertake the crisis related expenditures.

However, there will be a need for a fiscal side support to the states by way of a fiscal stimulus fund, he said.

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