In an economy, there is a surplus and a deficit of money at any given point. Every state has been trying its level best to fight COVID-19, however, at times when the state funds exhaust, they are replenished with the help of funds provided by the Reserve Bank of India (RBI). In simple words, the states borrow money from the Reserve Bank of India (RBI) when in deficit. Amidst COVID the RBI made some promising provisions for every state in terms of financial help.
The Reserve Bank of India (RBI) has come to the forefront to help the states during this crisis.
Under the Ways and Means Advances (WMA), the RBI extended limits on the borrowings that will be carried out by states and the Union Territories. Earlier, this was announced on the 17th of April, at the initial stage of the pandemic, after which it was announced again and extended for six months. Hence, this benefit lies until the 31st of March 2021.
This benefit is drawn under the Ways and Means Advances, and the funds can be used to go about the expenses that create a deficit. The Union Territories or the states can use this monetary help for lock-down related expenses.
This monetary assistance can sew the gap between expenses due to the virus, and the curtailed income due to the after-effects of it. The central bank shall extend its limit up to 60% as announced by itself on the 17th of April 2020.
Another ‘lock-down’ benefit that has been introduced by the central bank for states and union territories is the overdraft benefit. Now, the states and Union Territories can take an overdraft for 21 working days straight with the help of a 14 day earlier notice. Other than that, according to the previous scheme of quarterly overdrafts, the number of working days was 36. However, the refurbished scheme states that the number of days in a quarterly overdraft has been increased to 50.
The WMA is supposed to be a trampoline for the states when they run low on money. The RBI emerges as a banker who loans the state with some monetary assistance so that it could cope up with its deficits. This is why the central bank has curated some benefits so that the state and territories could battle COVID with ease.
The state and the territories have a monthly allowance of a certain amount when the states or the unions spend an amount higher than that; it is considered as an overdraft. To repay off the overdraft, the states and the unions had 36 working days pre-COVID which are now increased to 50. The overdraft can be used for a maximum of 14 days to its fullest utility. This move can be a great move to help the economy with the states and unions to grow or sustain when in an economic crisis.
The state and the unions pay interest linked to the WMA repo rate to pay off the emergency assistance. With the crunch in the economy, the states and the unions require emergency funds, the WMA benefits assure these emergency funds and help to battle COVID crisis at a better rate.