INSUBCONTINENT EXCLUSIVE:
Mumbai: For most out-of-town students, the last few days of the month are rather trying
They rely on a combination of hostel loans and credits at the messing facilities to tide over the month-end cash crunch
North Block appears to be relying lately on similar arrangements with the central bank to tide over its own cash-flow mismatches
The Ways and Means Advances, or WMA, is a facility not dissimilar in its utility to the month-end cash crunch at the individual level
It allows the Centre to borrow from the Reserve Bank of India (RBI) and meet payment obligations in the event of cash-flow mismatches.
Of
course, there are limits on the WMA facility
advisor at the State Bank of India
The agreement between the government and the RBI allows the former to borrow up to Rs 35,000 crore at any point of time in the second half
of FY20.
RBI data showed that the government breached the limit for four out of the five weeks in January
A long-term analysis shows that the government has been excessively relying on this facility over the past two years after a gap of six
Besides the Centre, state governments, too, have been borrowing under the WMA.
The government pays the prevailing repo rate for any
borrowing below the agreed limit
If the limit is breached, then it pays an additional 2% above the repo rate for the excess amount borrowed.
This reliance on WMA comes at a
time when the government is seeking to lower its borrowing costs through Operation Twist
RBI had stopped the practice of unlimited borrowing through ad-hoc treasury bills to help develop fiscal restraint
The limits and the rate of interest are reset twice a year, which can be also revised under extraordinary economic circumstances.