Sept 29 (Reuters) – India’s central bank-appointed panel on Tuesday proposed raising 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, while recommending measures to strengthen states’ cash management practices.
Here are the details:
• The panel recommended that states spread market borrowings more evenly through the year and avoid a concentration of issuances in the fourth quarter, which would help improve cash management and reduce funding pressures.
• Ways and means advances are temporary loans extended by the Reserve Bank of India to state governments to help bridge mismatches in cash flows. The limits are reviewed periodically based on states’ financing requirements and evolving fiscal conditions.
• The committee recommended 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 proposed 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 panel also suggested reducing the maximum number of consecutive working days that a state can remain in overdraft to 10 from 14 at present, noting that this would help foster a sense of greater discipline and encourage states to better assess liquidity needs.
• The share of states issuing government debt has steadily increased in India. Earlier in the year, heavy borrowing by Indian states had complicated the central bank’s efforts to lower interest rates.
($1 = 95.9800 Indian rupees)
(Reporting by Anuran Sadhu in Bengaluru; Editing by Shailesh Kuber)
