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RBI Committee Recommends 11.2% Rise in States' Average WMA Limit
ஏன் செய்தியில்?
States' WMA limit up 11.2%, yet another window now matters more: the Special Drawing Facility, explained for GS-III
An RBI advisory committee proposed raising States' average WMA limit by 11.2 per cent.
Why it matters: asked in UPSC 2018; factual, Prelims-type
What you need to know
2 நிமிடம்
The Reserve Bank of India placed on its website the report of the Advisory Committee on Ways and Means Advances (WMA) to State Governments.
The Committee recommends an 11.2 per cent increase in the average WMA limit of States.
It also notes that the Special Drawing Facility, and not WMA, has become the main window for liquidity support to States in recent times.
ஆதாரங்கள்: Topper IAS editorial (PIB / The Hindu / Indian Express)
முக்கிய உண்மைகள்
Remember these
- The RBI published the report of the Advisory Committee on Ways and Means Advances (WMA) to State Governments.
- The Committee recommends an 11.2 per cent increase in the average WMA limit of States.
- The Special Drawing Facility, not WMA, has become the main window for liquidity support to States in recent times.
- WMA is a short-term RBI facility that bridges temporary mismatches between a State's receipts and payments.
- Beyond WMA and SDF, an overdraft is available to a State once its limits are exhausted.
ப்ரிலிம்ஸ் · மெயின்ஸ்
How the exam will ask it
ப்ரிலிம்ஸ்
- Ways and Means Advances are extended by the RBI to State Governments to meet temporary mismatches between receipts and payments.
- WMA is a short-term facility and is not meant to finance long-term capital expenditure or recapitalise State enterprises.
- The Special Drawing Facility is a collateralised support window for States, distinct from WMA.
- The limits of the WMA scheme are revised on the advice of an RBI advisory committee.
மெயின்ஸ்
GS-III Economy (public finance) and GS-II (federalism): States rely on short-term RBI liquidity windows to manage cash-flow mismatches, and the committee's proposed 11.2 per cent rise in the average WMA limit reflects larger budgets, while the Special Drawing Facility now serves as the main window. The implication is that States' cash-management stress and the design of the liquidity framework matter for Centre-State financial relations. Way forward: periodic limit revision, better cash-flow forecasting by States, and discipline so short-term facilities are not used as a substitute for fiscal consolidation.
PYQ connection
A question UPSC has already asked on this
Consider the following statements
- The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
- The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
- As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.
Which of the statements given above is/are correct?
- 1 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
விடையைக் காட்டு
விடை: C
Why this matters: today's issue is directly connected to a concept UPSC has already tested. Read the story with this question in mind.
Practise this PYQ →Quick recall
Answer before you reveal
Ways and Means Advances (WMA) extended by the Reserve Bank of India to State Governments are primarily meant to meet:
- temporary mismatches between receipts and payments
- long-term capital expenditure on infrastructure
- repayment of market borrowings falling due over several years
- recapitalisation of loss-making State enterprises
விடையைக் காட்டு
விடை: A — Correct: temporary mismatches between receipts and payments — WMA is a short-term facility that bridges temporary mismatches in the timing of a State's receipts and payments. • long-term capital expenditure on infrastructure — wrong: Long-term capital expenditure is financed through market borrowings and central loans, not through short-term WMA. • repayment of market borrowings falling due over several years — wrong: Repayment of multi-year market borrowings is met from a State's own resources or fresh borrowings, not from temporary WMA. • recapitalisation of loss-making State enterprises — wrong: Recapitalising State enterprises is a budgetary decision financed by the State and is outside the purpose of WMA.
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