The government has as of now not borrowed a single rupee in terms of loan from the Reserve Bank of India (RBI) for the current fiscal year 2021-22 as it has a “positive” balance in its account.
Under the RBI Act, known as “Ways and Means Advance” (WMA), the loan facility is provided by the central bank to the government on a temporary basis to make up for the mismatch between spending and revenue flows.
According to sources, the WMA facility has not been used for the current fiscal year, due to “continuing positive balance in the government’s account”, although it has been set at Rs 1.70 lakh crore for 2021-22.
RBI provides the central government with the WMA facility as temporary financing for a period of 90 days. If the WMA limit is exceeded, it will be in the red for a period of up to 10 consecutive business days.
RBI has the authority to revise the limit at any time after consultation with the government and taking into account prevailing circumstances.
What is the interest for WMA and Red standing?
While the interest rate for WMA is the prevailing repo rate, which is currently 4 percent, the interest rate for overdraft is 2 percent above the repo rate, so 6 percent.
Incidentally, the government had taken advantage of the WMA and overdraft facility worth Rs 9,55,243 crore for 2018-19 while it had taken Rs 11,79,582 for 2019-20 for the same purpose. In 2020-21, the government had taken Rs 3,98,990 crore as WMA and overdraft.