Coronavirus (COVID-19): The Reserve Bank of India (RBI) has hiked the limit of Ways and Means Advances (WMA) facility of the central government, allowing it to borrow up to Rs 2,00,000 crore from the central bank to meet the short-term liquidity requirements.
This is the second hike in WMA limit by the RBI in the last one month. On April 1, the WMA limit — the ceiling on its temporary loan facility with the RBI — for the central government was raised to Rs 1.2 lakh crore from Rs 75,000 crore, a 60 per cent increase. According to the RBI, the limit for WMA for the remaining part of first half of the financial year 2020-21 (April 2020 to September 2020) will be revised to Rs 2,00,000 crore “to tide over the situation arising from the outbreak of the pandemic”.
On April 17, the RBI enhanced the limit on WMAs to the state governments from 30 per cent to 60 per cent, enabling them to raise more funds from the RBI. On April 1, the RBI increased the WMA limit by 30 per cent from the existing limit for all states and Union Territories to enable them tide over the situation arising from the outbreak of the Covid-19 pandemic.
Greater financial comfort for Centre
The hike in Ways and Means Advances (WMA) limit is expected to provide greater comfort to the government for undertaking Covid-19 containment and mitigation efforts, and to plan their market borrowing programmes better. Considering the expected fiscal slippage, total borrowings of the Centre and states are now estimated to be around Rs 20 lakh crore.
WMA is a short-term liquidity arrangement facilitated by the central bank, which enables the government to borrow money up to 90 days from the RBI at the repo rate of 4.40 per cent to tide over its liquidity problems. The hike in WMA limit is expected to provide greater comfort to the government for undertaking Covid-19 containment and mitigation efforts.
“When we look at the past WMA limits for the Centre such a huge amount was seen only in FY19 which was an election year in which the government expenditure generally witnesses an increase,” said a research report from State Bank of India.
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