From UPSC perspective, the following things are important :
Prelims level : WMA
Mains level : Liquidity management measures by RBI
- RBI may trigger fresh floatation of market loans when Government utilizes 75% of the WMA limit.
- The interest rate on WMA will be Repo Rate and overdraft will be 2% above the Repo Rate.
Ways and means advances (WMA)
- The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to government. This temporary loan facility is called Ways and Means Advances (WMA).
- It is a mechanism to provide to States to help them tide over temporary mismatches in the cash flow of their receipts and payments.
- It was introduced on April 1, 1997, after putting an end to the four-decade old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit.
- This facility can be availed by the government if it needs immediate cash from the RBI. The WMA is to be vacated after 90 days.
- Interest rate for WMA is currently charged at the repo rate. The limits for WMA are mutually decided by the RBI and the Government of India.