The Reserve Bank of India has published the Advisory Committee report on the review of the Ways and Means Advances (WMA) framework for state governments on its website. The committee, chaired by I S N Prasad, assessed state-wise WMA limits, other financial assistance and accommodation facilities available to states. As per the RBI, the central bank will now examine the committee's recommendations, which could potentially affect state governments' borrowing and liquidity management framework. The publication of the report indicates that the central bank is reassessing the limits and structure of short-term financial support mechanisms available to states, with the RBI considering whether any changes to the existing framework are necessary.
A Reserve Bank of India advisory committee has proposed raising the aggregate Ways and Means Advances (WMA) limit for state governments by 11.2% to ₹67,839 crore, up from the existing ₹61,008 crore. According to the latest RBI press release, the committee has recommended that WMA limits be reviewed annually based on the latest three years of accounts data, with increases generally capped at 4% per year. The revised limit for individual states should not be lower than their existing limits, ensuring continued access to this facility. The proposed increase comes after a sharp expansion in WMA limits over the past decade, with the aggregate limit rising from ₹32,225 crore in February 2016 to the current proposal. The committee, chaired by I S N Prasad, analysed various fiscal parameters including total expenditure and revenue receipts to identify the 'Base' for calculation of WMA limits, concluding it is more appropriate to fix state-wise WMA limits based on 'Revenue Receipts' as compared to 'Total Expenditure'. As per the committee report, considering the growing budget size of states, which could lead to higher liquidity support requirements from the Reserve Bank, there is a case for increasing the WMA limits of the states.
The committee has raised concerns over the concentration of state government market borrowings towards the end of the financial year. As reported by the RBI, concentrating borrowing in the January-March quarter can result in excess supply of State Government Securities (SDLs) in the market, pushing up borrowing costs for all states. The panel has recommended that states spread out their market borrowings throughout the year and avoid concentration in the fourth quarter of the financial year. The committee also flagged that concentrating borrowing in the final quarter can leave states with large idle cash balances towards the end of the financial year. The committee has proposed that the majority of states adopt the Benchmark Issuance Strategy (BIS), introduced by the Reserve Bank from financial year 2026-27, and recommended that remaining states adopt it at the earliest.
The committee has suggested several operational improvements to strengthen states' cash management. As reported by the RBI, it proposes reducing the maximum continuous overdraft period from 14 to 10 working days and cutting the quarterly overdraft limit from 36 to 30 working days to disincentivise taking overdrafts. Additionally, the committee recommends raising the amount of Consolidated Sinking Fund investments that states can use to access the RBI's Standing Deposit Facility from 50% to 75%. The higher SDF access aims to encourage states to build CSF and Guarantee Redemption Fund balances to at least 5% of outstanding marketable debt. The committee also recommended tighter rules for states using overdraft facilities, noting that OD usage has declined in recent years. The Advisory Committee on WMA for state governments was constituted by the RBI on April 30, 2026, to review the existing WMA Scheme for the State Governments and examine other related issues.
The proposed increase follows a significant rise in aggregate WMA limits over the past decade. According to the RBI, the limit was ₹32,225 crore in February 2016 and increased to ₹41,893 crore in April 2020, ₹47,010 crore in April 2022, ₹60,118 crore in July 2024, and ₹61,008 crore in January 2026. The latest proposal would take the limit to ₹67,839 crore. The WMA facility allows state governments to meet temporary mismatches between cash inflows and expenditure, but the committee emphasizes it should not become a source of financing for budget deficits. The proposed ₹67,839 crore limit is based on adjusted revenue receipts (revenue receipts minus lottery-related expenditure plus net expenditure on natural calamities where it is positive), using accounts-level data from 2022-23 to 2024-25. The RBI may consider undertaking an annual exercise of revising WMA limits using the methodology suggested by this committee, with the next committee review potentially set up post the release of the Seventeenth Finance Commission report.
