Explainer - Ways and Means Advances (WMA) to states

• An advisory committee of the Reserve Bank of India (RBI) recommended raising the aggregate Ways and Means Advances (WMA) limit for states to meet temporary cash mismatch by 11.2 per cent to Rs 67,839 crore, in view of their growing budget size.

RBI’s short-term financial support to states

• The RBI acts as banker and debt manager to 28 state governments and three Union Territories (UTs) —  Puducherry, Jammu & Kashmir, and Delhi. 

• The RBI provides financial accommodation to states to manage temporary cash-flow mismatches under Section 17(5) of the Reserve Bank of India (RBI) Act, 1934.

1) Ways and Means Advances (WMA)

• The central bank has been extending WMA to state governments since 1938 for managing temporary mismatches in their cash flows, with limits initially tied to their minimum cash balances and subsequently linked to budget heads (expenditure and receipts).

• Such advances are repayable in each case not later than three months from the date of making the advance. 

• The state-wise WMA limits were periodically revised as a multiple of their minimum cash balances till early 1999, keeping in view of their:

i) Perceived requirements.

ii) Evolving fiscal, financial, and institutional developments.

iii) Objectives of monetary and fiscal management. 

• The initiation of the Conference of SFS in 1997 induced a transformation in the approach towards formulating changes in the WMA Scheme. 

• Since then, advisory committees have periodically been constituted by the RBI to review the prevailing WMA arrangements and recommend changes, as considered appropriate.

2) Special Drawing Facility

• In 1953, a scheme of collateralised liquidity support for the states, named Special Ways and Means Advances (SWMA) was introduced against the collateral of government of India securities held by them. 

• SWMA was renamed as Special Drawing Facility (SDF) in June 2014. 

• Short-term collateralised financial accommodation at concessional rate is also provided to the states by the RBI through SDF against their investment in Consolidated Sinking Fund/Guarantee Redemption Fund/Auction Treasury Bills.

3) Overdraft

• Overdraft (OD) was available to the states once they had exhausted their WMA and SWMA limits. 

• Since 1972, states’ access to OD has been restricted to a limited number of days, as decided from time to time. 

• In the hierarchy of financial accommodation available from the RBI, states first avail SDF against the corpus of investment held in CSF/GRF/ATBs, followed by WMA. Once the WMA limit is exhausted, OD gets triggered.

• The interest rate charged on WMA/OD has been fixed from time to time based on the recommendations of various committees/groups constituted by the RBI. 

Panel’s recommendations on WMA limits:

• The RBI constituted an advisory committee on April 30, 2026, under the chairmanship of I.S.N. Prasad, former additional chief secretary, government of Karnataka.

• The committee studied the recommendations of the Sixteenth Finance Commission (FC-XVI) and assessed their possible implications on states’ finances and their liquidity requirements. 

• Considering the growing budget size of the states, which could lead to higher liquidity support requirements from the RBI, the committee recommended increasing the WMA limits of the states. 

• The Committee recommended revision in aggregate WMA limit for the states to Rs 67,839 crore from the existing limit of Rs 61,008 crore, an increase of 11.2 per cent over the current limit.

• For arriving at the revised WMA limits, the ‘base’ has been taken as adjusted revenue receipts (revenue receipts minus lottery-related expenditure plus net expenditure on natural calamities, if it is positive) using accounts-level data (2022-23 to 2024-25).