Key facts
- India's central bank-appointed panel proposed raising the aggregate ways and means advances limit for state governments to 678.39 billion rupees.
- The panel recommended states spread market borrowings more evenly throughout the year.
- Ways and means advances are temporary loans from the Reserve Bank of India to state governments to bridge cash flow mismatches.
- The committee proposed allowing states with Consolidated Sinking Fund balances exceeding 5% of their outstanding marketable debt to withdraw excess amounts freely.
- The panel proposed increasing the share of the eligible CSF corpus that can be availed under the Special Drawing Facility to 75% from 50%.
- The panel suggested reducing the maximum number of consecutive working days a state can remain in overdraft to 10 from 14.
A panel appointed by India's central bank has proposed increasing the aggregate ways and means advances limit for state governments to 678.39 billion rupees ($7.07 billion) from the current 610.08 billion rupees. The Reserve Bank of India extends these temporary loans to states to help bridge mismatches in cash flows.
The committee also recommended measures to strengthen states' cash management practices. These include spreading market borrowings more evenly throughout the year to avoid a concentration of issuances in the fourth quarter, which would help reduce funding pressures. The panel suggested reducing the maximum number of consecutive working days a state can remain in overdraft to 10 from 14 to foster greater discipline.
Additionally, the committee proposed allowing states with Consolidated Sinking Fund (CSF) balances exceeding 5% of their outstanding marketable debt and guarantees to withdraw the excess amount freely. It also suggested increasing the share of the eligible CSF corpus that can be availed under the Special Drawing Facility (SDF) to 75% from the current 50%. The share of states issuing government debt has increased in India, and heavy borrowing by states earlier in the year had complicated the central bank's efforts to lower interest rates.