The Reserve Bank of India (RBI) recently increased the Ways and Means Advances (WMA) limit for Tamil Nadu from ₹3,601 crore to ₹4,582 crore. In recent years, Tamil Nadu has not utilised the short-term borrowing facility, which analysts say is an indication that the State has adequate liquidity.
The RBI provides short-term financial assistance to States in the form of WMA. This helps States overcome temporary mismatches in the cash flow of their receipts and payments.
Such financial assistance is intended to aid the States in carrying out essential activities and normal financial operations, according to the RBI.
In addition, States could utilise the Special Drawing Facility (SDF) by providing government securities as collateral. If a State exceeds its WMA and SDF limits, it could also avail itself of the overdraft (OD) facility from the RBI.
States have to pay interest for availing themselves of SDF, WMA and OD, which are linked to the repo rate.
Tamil Nadu manages its liquidity well and has not used ways and means advances well, analysts at CRISIL Ratings said in its recent report on Tamil Nadu Generation and Distribution Corporation Ltd (Tangedco).
The State government did not avail itself of WMA and OD from the RBI during FY2016 to FY2024 (till December 2023). In addition, the State government had an investment of ₹1,400 crore in auction treasury bills at the end of December 31, 2023. The liquidity position of the State government can be inferred to be adequate in recent years, said analysts at ICRA Ltd, another ratings firm, in its report on Tangedco.
At the end of April 30, 2024, the State government had an investment of ₹3,964 crore in auction treasury bills, as per data from RBI.
Tamil Nadu has preferred borrowing from the market through the issue of bonds known as State Development Loans, which helps in spacing out the debt repayment obligations over a longer period of time.
