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With reference to Ways and Means Advances (WMA), consider the following statements:
- It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows.
- Normal Ways and Means Advances are provided at lower interest rate than the repo rate.
- The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.
Which of the statements given above is/are correct?
- a)1 only
- b)1 and 2 only
- c)2 and 3 only
- d)1, 2 and 3
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
With reference to Ways and Means Advances (WMA), consider the followin...
- Recent Context: Reserve Bank of India (RBI) has extended the interim ways and means advances (WMAs) limit to state governments to help them tide over the financial stress posed by the second wave of COVID-19.
- Under the RBI Act, 1934, WMAs are the temporary advances given by the RBI to Centre and States to tide over any mismatch in receipts and payments. Borrowings through WMA are to be repaid within three months and usually offered at the repo rate. Hence, statement 1 is correct.
- There are two types of WMAs — normal Ways and Means Advances; and Special Drawing Facilities (SDF) against government securities held by States as collateral. Any amount drawn by a State in excess of the normal WMA is an overdraft. There is a State-wise limit for the funds that can be availed via WMA. These limits depend on many factors, including total expenditure, revenue deficit and fiscal position of the State. WMA limits are revised periodically and the previous utilisation rates are considered while determining revised limits.
- The rate of interest applicable for normal WMA funding from RBI is the repo rate. Hence, statement 2 is not correct. The governments are, however, allowed to draw amounts in excess of their WMA limits. The interest on such overdraft is 2 percentage points above the repo rate.
- The interest levied for special WMAs or Special Drawing Facility (SDF) is one percentage point less than the repo rate due to the backing of government securities. Hence, statement 3 is not correct. After the state has exhausted the limit of SDF, it gets normal WMA.
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With reference to Ways and Means Advances (WMA), consider the followin...
Explanation:
Statement 1: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows.
This statement is correct. Ways and Means Advances (WMA) is a facility provided by the Reserve Bank of India (RBI) to the Central and State Governments to help them meet temporary mismatches in their cash flows. It allows the governments to borrow from the RBI to bridge the gap between their receipts and expenditures.
Statement 2: Normal Ways and Means Advances are provided at a lower interest rate than the repo rate.
This statement is incorrect. Normal Ways and Means Advances are not provided at a lower interest rate than the repo rate. The interest rate on Ways and Means Advances is determined by the RBI and is generally higher than the repo rate. The interest rate is usually set at 2 percentage points above the repo rate.
Statement 3: The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.
This statement is incorrect. The interest levied for Special Drawing Facilities (SDF) or Special WMA is not equal to the repo rate. SDF is a special provision under WMA, which allows the governments to borrow in excess of their normal limit for a temporary period. The interest rate for SDF is higher than the repo rate and is usually set at 2.5 percentage points above the repo rate.
Therefore, only Statement 1 is correct. Option 'A' is the correct answer.
Statement 1: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows.
This statement is correct. Ways and Means Advances (WMA) is a facility provided by the Reserve Bank of India (RBI) to the Central and State Governments to help them meet temporary mismatches in their cash flows. It allows the governments to borrow from the RBI to bridge the gap between their receipts and expenditures.
Statement 2: Normal Ways and Means Advances are provided at a lower interest rate than the repo rate.
This statement is incorrect. Normal Ways and Means Advances are not provided at a lower interest rate than the repo rate. The interest rate on Ways and Means Advances is determined by the RBI and is generally higher than the repo rate. The interest rate is usually set at 2 percentage points above the repo rate.
Statement 3: The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.
This statement is incorrect. The interest levied for Special Drawing Facilities (SDF) or Special WMA is not equal to the repo rate. SDF is a special provision under WMA, which allows the governments to borrow in excess of their normal limit for a temporary period. The interest rate for SDF is higher than the repo rate and is usually set at 2.5 percentage points above the repo rate.
Therefore, only Statement 1 is correct. Option 'A' is the correct answer.
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With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer?
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With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer?.
With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to Ways and Means Advances (WMA), consider the following statements: It is a facility for both the Centre and states to borrow from the RBI, to balance temporary mismatches in cash flows. Normal Ways and Means Advances are provided at lower interest rate than the repo rate. The interest levied for Special Drawing Facilities/Special WMA is equal to the repo rate.Which of the statements given above is/are correct?a)1 onlyb)1 and 2 onlyc)2 and 3 onlyd)1, 2 and 3Correct answer is option 'A'. Can you explain this answer?.
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