A hike in WMA: Post subsidies and duty cuts, government's cash flow needs increase

The Reserve Bank of India (RBI), in consultation with the government of India, has raised the limit of Ways and Means Advances (WMA0 to Rs 2,50,000 crore for the first half of the financial year 2026-27 (for the period April to Sept 2026). This level was Rs 1,50,000 crore for the corresponding period previous year and Rs 50,000 crore for the second half (Oct 2025-March 2026). The WMA announcement is usually announced twice a year.

Why is the WMA important?

Think of the WMA as a near term cash flow mechanism for a company or a liquidity management tool for a bank. The WMA is a cash flow management tool for the government, to help it tide over receipts and expenditure in a period of time. When the borrowing calendar comes out, the RBI sets a WMA limit for the government. Now this limit has been increased depending on market conditions.

The RBI has said that it may trigger fresh floatation of market loans when the government utilizes 75% of the WMA limit.

The government pledges securities, usually short-term T-bills with the RBI, for which the RBI gives the government liquidity. The money borrowed by the government is payable back to the RBI, with an interest rate of the repo rate and two percent above the repo rate, for an overdraft facility.

Why the government needs more money

This increase in the WMA was required possibly because the government believes it will need to spend more and its tax collection cycle could be seasonal or delayed.

Already the government has announced various subsidies – in fertilizer sector and the energy sector. It has also cut the special additional excise duty (SAED) on petrol and diesel by Rs 10 per litre each, on March 27.

All of this means forgoing revenues. Due to the uncertainty and escalation of the war in West Asia there is a possibility that the government may need more committed expenditure and provide more support. This is where the WMA support will help the government.