Govt hits 75% limit of ways and means advances

MUMBAI, APRIL 18: The central government has borrowed Rs 8,231 crore worth of ways and means advances (WMA) - borrowals to fund the mismatch...

MUMBAI, APRIL 18: The central government has borrowed Rs 8,231 crore worth of ways and means advances (WMA) – borrowals to fund the mismatch between revenue and expenditure of the government – from the Reserve Bank of India in the week ended April 3. This is 75 per cent of the stipulated WMA limit in the first half of the new fiscal forcing the government to float a fresh security.

The government floated Rs 4000 crore five-year stock carrying a coupon of 11.10 per cent on April 6. The RBI has slashed the WMA limit to the centre by Rs 1,000 crore in both the halves of the new financial year. The new WMA limit for the first half of the fiscal (April-September) is pegged at 11,000 crore and the limit for the second half (October-March) is Rs 7,000 crore.The centre resorts to WMA to meet its short-term mismatches. The interest rate on WMA is currently linked to the bank rate while in the previous year it was pegged at 300 basis points below the average implicit yield of the 91-day treasury bill in the previousquarter.

The advances under this segment were nil as on March 27. The highest advances made by the RBI in 1997-98 under this segment was Rs 5,233 crore on March 13, 1998. The government privately placed Rs 6000 crore worth of bonds with the RBI in the third week of March after the centre’s borrowing hit the 75 per cent of the prescribed WMA ceiling of Rs 8000 crore in the second half of the last fiscal year.

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The money supply (M3) during the previous financial year shot up to 17 per cent, exceeding the prescribed band set by the RBI at 16-16.5 per cent. The year-on-year M3 money supply growth rose to 17 per cent in the two weeks to March 27 from 16.7 per cent in the two weeks ended March 13, the Reserve Bank of India’s weekly statistical supplement said on Saturday.

RBI sources said that in the current fiscal the M3 target is likely to be around the same level of 16-16.5 per cent. The rise in M3 in the fiscal can be attributed to the rise in the net foreign exchange assets in the banking sector whichrose by 20 per cent in the fiscal. Time deposits with the banking sector have also shown a phenomenal 20.4 per cent rise, thus attributing to the rise in the M3.

Forex reserves with the Reserve Bank grew to $ 29.32 billion on April 3 up by $ 128 million during the week. The rise is due to a similar rise in the forex assets with the RBI which grew to $ 26.26 billion during the same period.

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