MUMBAI, MAR 1: In a move to discipline the state government finances, the Reserve Bank of India (RBI) on Monday revised the scheme of ways and means advances (WMA) to state governments on the basis of Vithal committee report.The apex bank has hiked the normal WMA limits by 65 per cent to Rs 3,685 crore from Rs 2234.40 crore and liberalised the limits for special WMA by linking it to the states' actual holdings of dated government of India securities. The RBI, however, has made it clear that the states will not be allowed from running overdrafts for more than ten consecutive days. The revised scheme of WMA will be impelemented with effect from March 1, 1999.Today's revised scheme is the result of the recommendations of an informal advisory committee on WMA to state governments constituted by the RBI governor under the chairmanship of BPR Vithal, member, Tenth Finance Commission on August 19, 1998.Analysts said that the move to change the WMA scheme for states comes after there has been a significantdeterioration in the finances of the state government in the previous few years. During 1997-98, 16 states resorted to overdrafts of which nine states frequently resorted to overdrafts as compared to eight states in the previous year reflecting a persistent stress on liquidity management and underlying structural imbalances in their finances. The RBI announced that the under the revised scheme for availing special WMA there will no longer be any upper limit on special WMA as a multiple of minimum balance. At the time of the revision in 1996, the ceilings for normal and special WMA were fixed at 168 times and 64 times of the minimum balance of Rs 13.30 crore.An RBI release said: "No state shall be allowed to run an overdraft with the RBI for more than ten consecutive days. If overdraft remains beyond ten consecutive working days, RBI will stop payment on behalf of the state. The overdraft shall not exceed 100 per cent of normal WMA limit. If the overdraft exceeds 100 per cent of the WMA limit in a financeyear on the first occasion RBI will advise the state governments, on a second or any subsequent occasion, the state shall be given only three working days notice to bring down the overdraft within the 100 per cent limit. If this is not adhered to payments will be stopped," the RBI said. The RBI has said that the recommendation that no states be allowed to run an overdraft for more than 20 working days during a quarter in the financial year will be implemented after two years. The apex bank has also decided that the minimum balance will be revised upwards linking it to the same base as for WMA from the same date the RBI will receive the concurrence from the state governments.
