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Ways and Means Advances UPSC NOTE

 Why in news

  • The Reserve Bank of India increased the Ways and Means Advances (WMA) limits of State governments and Union territories to ₹60,118 crore from ₹47,010 crore effective July 1

Ways and Means Advances

  • The WMA scheme was introduced in 1997.

  • To meet mismatches in the receipts and payments of the government

Features:

  • The government can avail immediate cash from the RBI, if required. 

  • But it has to return the amount within 90 days

  • Interest is charged at the existing repo rate.

  • If the WMA exceeds 90 days, it would be treated as an overdraft (the interest rate on overdrafts is 2 percentage points more than the repo rate).

  • The limits for WMA (for Centre) are decided by the government and RBI mutually and revised periodically.

  • A higher limit provides the government flexibility to raise funds from RBI without borrowing them from the market.

  • There are two types of Ways and Means Advances — normal and special.

  • A Special WMA or Special Drawing Facility is provided against the collateral of the government securities held by the state.

  • After the state has exhausted the limit of SDF, it gets normal WMA.

  • The interest rate for SDF is one percentage point less than the repo rate.

  • The number of loans under normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.

Significance

  • Need of immediate and large financial resources to deal with challenges such as covid 19 for states

  • WMA funding is much cheaper than borrowings from markets.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Ways and Means Advances UPSC NOTE
Ways and Means Advances UPSC NOTE
https://lh7-us.googleusercontent.com/slidesz/AGV_vUdwlEWo5I1IqpBL23yRAjkvKzQBWs6xHLLzkl0ryIuWSzz5kXWHLLlyvfGGhiClrqbKjPyCRCocKQJ1t3UpW2gqSMFNQJjvP-It0QMA5XqQpRKP_dNbgMIDbIhjeDyOW842KQA9ZWVIFb6cI77nN2h56yh4ZoYKVN4ko4-IvFkZlg=s2048?key=bkdWuiea3o0lzWI9uQzFPQ
https://lh7-us.googleusercontent.com/slidesz/AGV_vUdwlEWo5I1IqpBL23yRAjkvKzQBWs6xHLLzkl0ryIuWSzz5kXWHLLlyvfGGhiClrqbKjPyCRCocKQJ1t3UpW2gqSMFNQJjvP-It0QMA5XqQpRKP_dNbgMIDbIhjeDyOW842KQA9ZWVIFb6cI77nN2h56yh4ZoYKVN4ko4-IvFkZlg=s72-c?key=bkdWuiea3o0lzWI9uQzFPQ
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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