Ways and means advance is a mechanism under which the RBI extends temporary advances both to the central and state government.
The ways and means advance limits are decided by the RBI at the beginning of a financial year and interest rate is charged at or around the bank rate.
Till 1997 the government used to finance planned expenditures through RBI borrowings (deficit financing) but uncontrolled borrowings lead to inflationary pressure. Thus, deficit financing was phased out and replaced by ways and means of advance.
