Reserve Bank plans to keep WMA limit intact

The new limit effectively means that the Reserve Bank expects revenue and expenditure mismacthes to be at the same level as it has been in 1998-99. Governmental expenditure rose 27 per cent during the current financial year and the finance minister has set up an expenditure committee to rein in the runaway expenditure while revenues fell wellshort of target.

Any excess drawal by the Government beyond the stipulated limit will not be permissible for more than 10 consecutive working days after March 2000, RBI sources said.

Sources said that the WMA will continue to be linked to bank rate as was the case in 1998-99. In the previous year, it was linked to the implicit cut-off yield of 91-day treasury bills.

Last year, the RBI had also dispensed with the special rate that the Government could avail of under quot;extraordinary circumstancesquot; through the WMA. In cases of overdraft, the interest rate was fixed at 100 basis points above the bank rate.

The RBI had announced a Rs 1,000-crore cut in both the first and second-half limits for WMA to the government during fiscal 1998-99. It had also jacked up the interest rate on WMA by a hefty margin by linking it to the bank rate instead of 91-day treasury bill yield. This worked out to a six percentage points jump in the cost of WMA to the Government compared to what it was earlier. Under thearrangements, the WMA limit for the first half of the new fiscal April-September was pegged at Rs 11,000 crore, Rs 1,000 crore lower than in the corresponding period of the previous year. For the second half October-March, the limit was pared by an identical margin8211;from Rs 8,000 crore to Rs 7,000 crore.

The RBI had entered into an agreement with the centre on March 26, 1997, to replace the system of ad hoc treasury bills by WMA to accommodate temporary mismatches in Government8217;s receipts and payments. According to the agreement, a fresh flotation of securities is imperative if the Centre exceeds the 75 per cent WMA limit.