| What is correct about 'Ways and Means and Advance' mechanism? |
| 1. It was introduced in April 1997. |
| 2. The concept of budget deficit was 36 withdrawn after introduction of this mechanism. |
| 3. Under this mechanism, the government borrows from the RBI only for temporary mismatch between receipt and expenditure in the form of overdraft. |
| Choose the correct one: |
A) Only 1 and 2
B) Only 2 and 3
C) Only 1 and 3
D) All 1, 2 and 3
Correct Answer: D
Solution :
There are times, when there is a temporary mismatch in the cash flow of the receipts and payments of the State Governments. To handle this mismatch, there is a WMA scheme / facility which refer to Ways and Means Advances. RBI makes WMA to the state governments for a period of 90 Days. If the state government take WMA against the collateral Government securities, it is called Special WMA. If they are not against the security, then they are provided WMA based upon the three-year average of actual revenue and capital expenditure of the state. This is called normal WMA. WMA limits are if exceeded, is called overdraft. A state Government can withdraw an overdraft for maximum of 14 days consecutively. A state Government can withdraw an overdraft for maximum 36 days in a quarter. The rate of interest is linked to repo rate.
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