Govt may have taken out `600b from WMA in first week of Oc­to­ber

Financial Chronicle - - PLAN, POLICY - RIA MATWANI

GOV­ERN­MENT of In­dia may have dipped into the Re­serve Bank of In­dia’s Ways and Means Ad­vances (WMA) by around Rs 500600 bil­lion dur­ing the first week of Oc­to­ber to fi­nance their vig­or­ous spend­ing ahead of key state elec­tion. The gov­ern­ment had re­mained in sur­plus for the two weeks end­ing Septem­ber 21 and Septem­ber 29 on back of col­lec­tion from ad­vance tax and GST af­ter dip­ping into WMA for seven con­sec­u­tive weeks prior to these two weeks.

“Given the ag­gres­sive spend­ing pat­tern and the swing in sys­temic liq­uid­ity over the week, we ex­pect the gov­ern­ment to have again dipped into WMA by about Rs 500-600 bil­lion,” said Up­sana Bhard­waj, se­nior economist with Ko­tak Mahin­dra bank in a note.

Gov­ern­ment had, af­ter its usual month-end ex­pen­di­ture in the form of salary and pen­sion credit (around Rs 650-750 bil­lion), re­leased food sub­si­dies by Septem­ber 30.

Be­sides, the gov­ern­ment is dis­burs­ing funds in the elec­tion states in­clud­ing Mad­hya Pradesh, Ra­jasthan, and Ch­hat­tis­garh.

The five states viz Ch­hat­tis­garh, Mi­zo­ram, Ra­jasthan, Te­lan­gana, and Mad­hya Pradesh are sched­uled to con­duct elec­tions be­tween Novem­ber 12 and De­cem­ber 7. The re­sults will be de­clared on De­cem­ber 11.

This means the gov­ern­ment will once again hit its over­draft fa­cil­ity un­der the RBI’s WMA as the Cen­tral Bank has set the limit at Rs 350 bil­lion for Oc­to­ber to Fe­bru­ary pe­riod. For March, the WMA limit is Rs 250 bil­lion.

RBI charges the repo ten­der rate — cur­rently at 6.50 per cent — for WMA loans. This is the rate at which RBI lends cash to banks via se­cu­ri­ties re­pur­chase agree­ments.

How­ever, when 75 per cent of the limit is bor­rowed, RBI may ask gov­ern­ment to bor­row from the mar­ket to draw down the out­stand­ing un­der WMA. Over­drafts to gov­ern­ment are charged 2 per­cent­age points above repo ten­der rate, i.e., 8.50 per cent.

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