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RBI Panel Boosts State Borrowing Limit
30 Sep
Summary
- WMA corpus may increase by 11.2% to Rs 67,839 crore.
- Annual upward revision capped at 4%, no reduction allowed.
- Overdraft days cut to disincentivize borrowing.
A Reserve Bank of India panel has proposed enhancing liquidity support for state governments by increasing the Ways and Means Advances (WMA) corpus by 11.2% to Rs 67,839 crore. This adjustment acknowledges the growing budget sizes of states and their increasing liquidity requirements. The committee, chaired by ISN Prasad, suggested state-wise limits based on revenue receipts to ensure tailored support.
The panel recommended an annual review of the WMA corpus, with a cap on upward revisions at 4% annually. Importantly, existing limits will not be reduced, providing stability. To further disincentivize continuous borrowing, the report suggested reducing the number of continuous overdraft days from 14 to 10, and quarterly overdraft limit days from 36 to 30.
Additionally, the committee proposed increasing the Special Drawing Facility (SDF) limit against eligible investments in the Consolidated Sinking Fund (CSF) or Guarantee Redemption Fund (GRF) from 50% to 75%. This measure aims to provide states with greater flexibility in managing their finances through existing support mechanisms.
