Centre can borrow more till June 30

The Centre will get a little more headroom for borrowings under the ways and means advances (WMA) facility that the Reserve Bank of India operates. The Centre will now be able to borrow up to a maximum of Rs 45,000 crore through this window between April 21 and June 30 — which is a greater part of the first quarter. Last year, the government had been kept on a tight leash with WMA borrowings capped at Rs 30,000 in the first half of the year till September 30. This got tighter in the second half (October 1 to March 31) when borrowings were limited to Rs 10,000 crore. This year the limit will be bumped up to Rs 45,000 crore for a short period of 71 days. It will, however, be kept at Rs 30,000 crore between April 1 and April 20 and then again between July 1 and September 30. In the second half of the year, the limit will be scaled back to last year’s level of Rs 10,000 crore.  As in the past, the RBI may trigger a fresh flotation of market loans when 75 per cent of the limit under WMA are utilised. Under the provisions of a 1997 agreement between the government and the RBI, the Centre will not be allowed an overdraft facility beyond 10 consecutive working days. The interest rate on the WMA advances will be pegged at the repo rate, which is currently pegged at 6.75 per cent. This could rise by 25 basis points when the RBI meets on May 3 to review its monetary policy. The interest rate on overdrafts will be capped at 2 percentage points above the repo rate. The government will have to maintain a minimum balance of not less than Rs 100 crore on all Fridays, the date of closure of the Government of India’s financial year, and on June 30 when the RBI closes its annual accounts. On all the other days, a minimum balance of Rs 10 crore will have to be maintained.  The WMA facility was introduced in 1997 after the system of issuing ad hoc treasury bills was phased out. It provides temporary accommodation to the government — up to 90 days — and is subject to limits.  The Fiscal Responsibility and Budget Management (FRBM) Act 2003 has prohibited direct borrowings by the Centre from the RBI with effect from April 2006 except by way of WMA or under exceptional circumstances.