Ways & means advance hiked

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New Delhi, Nov 12: Cash flow issues have now impacted the government, too. The Reserve Bank of India has raised the limit on how much the government can borrow from the central bank as ways & means advance to Rs 20,000 crore up to December, instead of Rs 6,000 crore.

A finance ministry statement said, “The temporary enhancement of the limit will help meet the unanticipated mismatches between government payments and receipts arising from the cancellation of two auctions scheduled for the month of October 2008, and the bunching of expenditure following the supplementary demand for grants.”

Government income comes from various taxes and fees. But these are bunched in four instalments, especially direct taxes that comprise 53% of receipts. Up until now, it has received only 30% of those taxes. Besides, data on indirect taxes released on Tuesday shows a 5% decline in customs and excise duties, which will impact total tax collections of Rs 6,87,715 crore for 2008-09.

However, the government has committed itself to a massive increase in expenditure of Rs 105,613 crore, which is a 13% hike over the budgeted amount. The difference between the exchequer’s expenditure and receipts is made up through market borrowings, but the sharp liquidity shortage forced the finance ministry to cancel two auctions in October.

The ways & means advance is additional support to keep the government’s cash flows intact. The government borrows through this facility for 90 days at the repo rate, currently at 7.5%. The advantage of the ways & means advances route is that it does not impact market liquidity conditions. The limit was raised to Rs 20,000 crore for the first half of the year, in 2006-07. For the second quarter, the limit until now was Rs 6,000 crore.