Significance and Implication of the WMA Scheme

Significance and Implication of the WMA Scheme

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Governments occasionally face financial difficulties, particularly during outbreaks like the Covid-19 outbreak. A program known as WMAs or, the Ways and Means Advances scheme aims to alleviate financial strain on the government during trying times. The significance of the WMA or Ways and Means Advances can be summarized as follows:

1. In order to address issues during trying times or, during black swan events, a number of states require significant immediate financial resources which are where the WMA scheme comes in.

2. The enhanced WMA limit allows states to borrow short-term funds from the RBI as a financial buffer when tax collections are uncertain due to unfavorable economic conditions.

3. If a state has a budget deficit, it can borrow short-term money from the RBI thanks to the increased WMA override limit.

4. Due to its longer maturity date and lower interest rate, WMA funding is less expensive than market borrowing or other schemes.

5. WMA can be utilized in place of state development loans, market-based long-term funding, and short-term borrowing from financial institutions. T • They provide governments with the funds they require.

6. The need for a variety of facilities, such as those for medical testing, screening, and providing the needy with income and food security, made the pandemic worsen the state's financial problems.

7. These can be used to raise long-term funds in a different way from the market.

8. The issuance of state government securities and short-term borrowing from a variety of financial institutions can also be assisted by WMA.

9. It costs less than market borrowing to obtain funding.

It is anticipated that the decision made by the Reserve Bank of India (RBI) to raise the WMA or, the Ways and Means Advances limit for borrowing short-term funds will provide states in India with a financial cushion during these uncertain times. In the face of the economic crisis brought on by the COVID-19 pandemic, the increased WMA limit is intended to assist states in managing their cash flow and meeting their financial obligations. Long-term financial relief is not the goal of Ways and Means advances. It gives both the central government and the states leverage to borrow from the RBI, assisting the government in meeting its payments and receipts.