Centre Recourse To Wma Touches Ceiling

The recourse by the central government to ways and means advances (WMA) from the Reserve Bank of India (RBI) touched the ceiling of Rs 11,000 crore on May 8. Since the government has raised Rs 4,000 crore since then, it could have reduced its reliance on WMA.

There is an auction of 9-year central government paper scheduled for May 27 for raising Rs 4,000 crore. By May 27, the government would have raised Rs 25,000 crore by issue of dated securities.

If the centre has indeed crossed the Rs 11,000 crore limit in the subsequent weeks, it would be the first time that it has gone into overdraft since the system of WMA was introduced.

As per the agreement between the central government, the limit on WMA for the financial 1998-99 has been fixed at Rs 11,000 crore for the first half of the year (April - September) and Rs 7,000 crore for the second half ( October - March). The government pays the Bank Rate for drawal up to the limit and for any drawals above the prescribed limit, it pays 200 basis points over the Bank Rate.

Analysts point out that while it has been a year since the centre embarked on improving its cash management techniques, it has not succeeded in making any significant strides.

Secondly, the recourse to WMA was in excess of the trigger of the 75 per cent limit for fresh flotation of securities on April 10, April 17 and May 1 and May 8.

Following the high reliance on WMA, there has already been a private placement of securities with RBI and government raised Rs 5,000 crore. The WMA is intended to be a mechanism to cover day to day mismatches in receipts and payments of the government and analysts also point out that if the government repeatedly breaches the 75 per cent limit, it is clear that it is using it as a means of financing.