WMA limit enhancement – How much?

WMA (Ways and Means Advance) facility enables states and Central government to tide over short term mismatches in cash flow by availing loan from the central bank.  On April 17,2020 RBI announced an increase in  the ways and means advances (WMA) limit of states by 60 percent over and above the position as on March 31,2020. On April 1,2020, RBI had increased the levels by 30% and the revised level of 60% is inclusive of the earlier announced 30%. The increased limit is extended till September 30,2020. Please refer Ways and Means Advance (WMA)–What is it? 

Spread of Covid -19 pandemic has already casted its trail on the global economy. The invisible virus has brought the activities the world to a standstill and countries without exception are fighting mode. India has not been an exception. The country declared a lockdown to minimise the spread and the economy has been in shackles ever since the lockdown. All economic barometers and trends have been indicating decline in overall activities. Even before the pandemic, the country was showing signs of a slowdown. Covid-19 aggravated the condition. With nearly all economic activities at a near standstill, there is hardly any money coming in for states from GST, petroleum products, liquor, motor vehicles, stamp duty or registration fee.

RBI made the announcement on April 17 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts and to support them to  plan their market borrowing programmes better. The announcement was made as part of   RBI’s stimulus package 2.0

What does the increase in limits of WMA mean?

For centre, the WMA limit for the second half of FY 2019-20 was Rs. 75,000 Cr. With the 60% increase the limit stands enhanced to Rs.1,20,000 crores till September 30,2020.

For the states, the aggregate limit available under WMA was Rs. 32,225 crores as on March 31,2020. This has now been raised to Rs. 51,560 crores. Uttar Pradesh, Maharashtra and Tamil Nadu are three states with maximum limits under WMA.

In addition, on April 7, RBI had  extended the period for which a state can be in overdraft from 14 to 21 consecutive working days, and from 36 to 50 working days during a quarter.

For the states and centre, revenues and taxes from various sources almost dried up since appearance of Covid-19 while expenses shot up fighting the virus. The expenses increased on account of arranging medical facilities for the affected and providing food and shelter to those who were heavily impacted by the lockdown.  Many of the states, even otherwise, have been on precarious condition as far as their financials are concerned. Through enhancement in limit and relaxations in norms, RBI is supporting the states and centre in their effort to fight the pandemic by extending money at the lowest rate. However, given the present level of impact, the present limits may turn out to be grossly insufficient.