Ways and means advances
Also called: WMA, temporary advances from RBI · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 12, Ch 5 "Government Budget and the Economy"
Meaning
Ways and Means Advances (WMA) are short-term loans from the RBI to the government. They cover a temporary gap when the government's cash payments run ahead of its cash receipts. The RBI fixes the limits in consultation with the government. Borrowing beyond the limit becomes an overdraft. Under the FRBM Act, WMA is the only borrowing from the RBI that is allowed.
Example
WMA began on 1 April 1997, replacing ad hoc Treasury Bills. Say tax receipts come in mainly at the end of a quarter, but salaries are due earlier. The government can draw WMA for a few days and repay it when the taxes arrive.
Don't confuse with
- Ad hoc Treasury Bills: the old system, which allowed automatic, unlimited money creation to fund deficits. WMA is limited and only for temporary gaps.
- Monetised deficit: the part of the fiscal deficit funded by the RBI, measured as the rise in the RBI's net credit to the government.
Related concepts
- Deficit financing
- Small savings schemes
- Monetised deficit
- Off-budget borrowing
- Contingent liabilities