The increase in the Ways and Means Advances (WMA) ceiling, or financial accommodation, by the Reserve Bank of India (RBI) for states and Union Territories last week by 28% to ₹60,118 crore, is likely to help Jammu & Kashmir address temporary cash flow issues, which have lately temporarily affected some state payments, including timely disbursement of certain employee salaries, General Provident Fund, gratuity and other essential state liabilities.
This increase provides J&K with more leeway to manage cash flow mismatches, especially for obligations like GP Fund, Gratuity, and contractor payments. The increased limit is known to aid state and UTs in maintaining their liquidity needs, which is crucial for managing day-to-day expenses and preventing delays in payments. If J&K UT is able to meet the conditions for availing enlarged use of WMA instrument, it could also address the wrong perception among the public that J&K is ‘short of money’, while essentially this is a temporary liquidity issue.
There are several factors for government treasuries in Jammu & Kashmir facing low cash flow issues for payments on certain occasions. Sometimes, there are delays in receiving tax revenue funds and grants from the central government, impacting cash flow. On occasion, higher spending on infrastructure, security, or welfare schemes, beyond the planned expenditure for a particular time cycle, also strain cash availability. Lower revenue collection from local taxes or other sources also affect the treasury’s ability to meet payment obligations, especially on crunch times like festivals, resulting in delayed payment of salaries, pensions and other key financial commitments.
Presently, Jammu & Kashmir’s current Ways and Means Advances (WMA) ceiling stands at ₹1815 crore as per the latest available reports. This is in the context of a significant budget allocation for 2024-25, where the overall expenditure is expected to be ₹118,728 crore, marginally higher than the previous fiscal year’s estimates.
The rise in the Ways and Means Advances (WMA) ceiling could offer several benefits for Jammu & Kashmir compared to normal market borrowing. Firstly, the WMA typically has lower interest rates compared to market borrowings, reducing overall interest expenses. Secondly, it provides immediate liquidity for short-term cash flow mismatches, owing to multiple factors for J&K, ensuring smoother financial management. Thirdly, this increase in the ceiling offers greater flexibility to J&K’s Finance Department in managing day-to-day expenditures without resorting to more expensive borrowing options.
