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