Ways and Means Advances

News:The government has increased the limit on Ways and Means Advance (WMA) by 60% to support the cash flow mismatch expected from higher spending to combat the spread of COVID-19.

Facts:

• Ways and Means Advances(WMA) Scheme was introduced in 1997.
• Purpose: These are temporary loan facilities provided by the Reserve Bank of India(RBI) to the central and state governments to meet mismatches in the receipts and payments.
• Interest Rate:It is currently at the existing repo rate and the tenure is for three months.However, if the tenure is extended,it will be treated as an overdraft which is charged above repo rate.
• Limits for WMA:They are decided by the government and RBI mutually and revised periodically.
• Types of WMA: a) Special WMA: It is extended against the collateral of the government securities held by the State Government and b) Normal WMA: It is based on a three-year average of actual revenue and capital expenditure of the state.It is not collateral based.