Contents

Annexe I.V	List of Officials/Experts met by the Committee
Annexe II.I	Minimum Balances and Ways and Means Advances to the State Governments: A Historical Review
Annexe II.II	Special Ways and Means Advances: A Historical Review
Annexe II.III	Overdrafts of State Governments: A Historical Review
Annexe II.IV	Interest Rates on WMA and OD - Historical Trend
Annexe III.I	WMA, Special WMA, Overdraft and Investment in Intermediate Treasury Bills - Weekly Averages
Annexe III.II	Major Fiscal Indicators of States - Aggregate Position
Annexe III.III	Major Fiscal Indicators of States - Growth Rates
Annexe III.IV	Interest Burden on States
Annexe III.V	Select Fiscal Indicators - State-wise Position
Annexe III.VI	Select Indicators of Fiscal Stress - State-wise Position
Annexe IV.I	Computation of Average Ratios for Determination of WMA Limits

Annexe-I.V
List of Officials/Experts met by the Committee
A.	Government of India,	Arunachal Pradesh	Mizoram
	Ministry of Finance	Otem Dai	Lalthansanga
	D.Swarup	Assam	Nagaland
	Dr.R.Bannerjee	H.S.Das	Lalthara
	Smt.Sheela Prasad
	Dr.Ashok Lahiri	Bihar	Orissa
		U.N.Panjiar	R.K.Choudhury
B.	PlanningCommission	Gujarat	Punjab
	Dr.N.J.Kurien	P.K.Poojari	K.R.Lakhanpal
C.	12th Finance Commission	Haryana	Rajasthan
	Dr.G.C.Srivastava	Chander Singh	S.C.Dinker
		Ram Niwas
D.	Experts	Himachal Pradesh	Tamil Nadu
	Dr.Y.V.Reddy	S.K.Sood	N.Narayanan
	S.S.Tarapore	V.S.Katoch	Ashish Vacchani
	B.P.R.Vithal
E.	Reserve Bank of India	Karnataka	Tripura
	Smt.Usha Thorat	B.K.Das	R.K.Mathur
	Prabal Sen	S.C.Khuntia
	Dr.D.V.S.Sastry	A.A.Biswas	Uttar Pradesh
	P.Arvind		Dr.B.M.Joshi
	M.G.Warrier	Kerala
	Dr.R.K.Patnaik	V.Senthil	West Bengal
	B.N.Ananthaswamy		Samar Ghosh
	G.D.Kallianpur	Madhya Pradesh
	R.K.Jain	Sudeep Banerjee
			Chhattisgarh
			Gaurav Dwivedi
		Maharashtra	Uttaranchal
	State Governments	A.K.D.Jadhav	Indu Kumar Pande
	Andhra Pradesh	Meghalaya	Jharkhand
	S.K.Arora	Shreeranjan	Subimal
			Mukhopadhyay

Annexe-II.I

Minimum Balance and Ways and Means Advances to the State Governments:
A Historical Review

1. Prior to the inauguration of Provincial Autonomy on April 1, 1937, Reserve Bank’s relations with the then Provincial Governments were not direct; the Bank dealt solely with the Central Government, and the latter was responsible for meeting the ways and means requirements of the Provincial Governments. With the introduction of Provincial Autonomy, each Province was required to open a separate account with the Reserve Bank, and accordingly, in terms of Section 21 of the Act (then in force), the Bank entered into separate agreements with the Provinces, which set out the terms and conditions on which the Bank agreed to transact the banking business of the respective Provincial Government. This change-over entailed several important questions of principle, particularly with reference to the method by which the ways and means requirements of the Provinces were to be met. These problems were examined by the Central Government, the Provincial Governments, and the Reserve Bank at a conference held in August 1936. In order to give time to the new autonomous Provinces to acquire the necessary experience in framing their ways and means requirements, it was decided that the Central Government should remain responsible for these requirements of the Provinces for the financial year 1937-38. From April 1, 1938, each Provincial Government assumed full responsibility for its own ways and means requirements and also agreed to keep a specified minimum balance with the Reserve Bank. The Provinces were required to meet any temporary deficits in their minimum balances either by issuing their own Treasury bills or by obtaining ways and means advances (WMA) from the Reserve Bank.

2. The minimum balances were fixed in 1937 on the basis of the ratio in which the total revenue and expenditure of the Government concerned bore to the total revenue and expenditure of the pre-provincial autonomy Central Government. The Finance and Revenue Accounts of the three years 1931-32 to 1933-34 were considered for this purpose. The minimum balances so fixed also represented the maximum limits up to which the States could draw as Ways and Means Advances (WMA).

3. With the coming into force in January 1950 of the Constitution of India, the Reserve Bank of India Act was amended in 1951 by the insertion of Section 21A which authorised the Bank to act, by agreement, as banker to the States. With the reorganisation of States, their classification into Part A, Part B and Part C States disappeared and except in regard to certain Union Territories, all States were placed on the same footing. Accordingly, the basis of the relation of the Bank with all States was also made uniform and the new Section 21A, as amended by the States Reorganisation Act, 1956, laid down that the Bank’s right or duty to act as the banker to the States was to be under agreement with them.

1953 Review

4. The minimum balances were found to be inadequate by the Bank in 1953 on the basis of the revenue and expenditure of State Governments. The State Governments had also availed of WMA considerably in excess of the prescribed limits to meet the gap between revenue and expenditure. A revision of the minimum balances and WMA limits was, therefore, undertaken in 1953. The basis which was adopted for arriving at the revised minimum balances was as under:

(i) The minimum balances of Part A

States, fixed in 1937, were increased by the ratio of the increase in the total amount of the average revenue and expenditure charged to revenue in the years 1948-49 to 1950-51 to the total amount of revenue and expenditure charged to revenue in the three years 1931-32 to 1933-34.

(ii) The minimum balances of Part B

States were similarly arrived at on the basis of the revenue and revenue expenditure in the two years 1949-50 and 1950-51.

5. The total minimum balances on this basis amounted to Rs.8.70 crore as against a sum of about Rs.1.95 crore stipulated earlier in 1937. In order to avoid any strain on the resources of State Governments, it was decided that the minimum balances should roughly be doubled so as to increase the total for all the States to about Rs.4.00 crore. This was made effective from April 1, 1953. The limits for WMA were also liberalised for the first time with effect from April 1, 1953 and were fixed at twice the minimum balance. The minimum balances fixed in 1953 were modified at the time of reorganisation of the States but no major changes were made.

1967 Review

6. In the Conference of the Chief Ministers in July 1966 on the question of preventing unauthorised overdrafts by the State Governments in their accounts with the Bank, the issue of revision of minimum balances and WMA of the State Governments were discussed. It was considered neither necessary nor appropriate to relate the minimum balances of the State Governments or their WMA limits to the revenue or revenue and expenditure as was done till 1953.A new formula for the determination of minimum balances and the WMA limits was, therefore, devised on the following basis.

7. The total of minimum balances required to be maintained with RBI by all the State Governments in India was increased in the ratio in which the total notional pre-decentralisation minimum balance of the Government of India increased during the period 1937 to 1967. As the working balance of the Central Government with RBI had increased from Rs.10 crore in 1937 to Rs.50 crore, the State Governments’ balances with RBI, as fixed originally in 1937, were also increased to five times the original figure. The total balances of all the States which worked out to Rs.1.85 crore in 1937, were notionally fixed at Rs.2.54 crore consequent on reorganisation of the States. It was, therefore, decided that the total minimum balances of State Governments based on the above formula be increased to Rs.12.70 crore in 1967 and then the amount be distributed to the States in the proportion of the revenue and expenditure charged to revenue of each State to the revenue and expenditure charged to revenue of all States together (according to actuals for the year 1964-65). It was also decided to raise the limits for WMA from twice the minimum balance to thrice the minimum balance. It was not, however, considered realistic to increase the minimum balances of State Governments from about Rs.4 crore to Rs.12.70 crore immediately. The minimum balances were, therefore, first raised to Rs.6.25 crore with effect from March 1, 1967. As a result of the above changes in the minimum balances of all State Governments, total limits for clean WMA to all State Governments went up to Rs.18.75 crore.

1972 Review

8. The total minimum balances of all States were increased to Rs.6.50 crore with effect from May 1, 1972 due to fixation of minimum balances in respect of four new States, viz., Himachal Pradesh, Manipur, Meghalaya and Tripura. As a measure of assistance to the States against any temporary imbalance between receipts and expenditure on account of abnormal or unforeseen factors, the normal WMA were raised to Rs.78.00 crore from the existing level of Rs.19.50 crore as per the recommendations of the Working Group constituted to suggest ways for elimination of overdrafts.

1976 Review

9. A detailed examination was undertaken to study the feasibility of carrying out basic change in the method of determining WMA and minimum balances in 1975 in the context of enormous increase in the size of State budgets. It was recognised that any basic change in the formula would inter se alter the limits of State Governments giving rise to avoidable problems. Moreover it was not deemed desirable to devise a formula linked to expenditure of the State Governments as this would result in automatic increases in the WMA. It was observed that there were problems only in the case of a few States because of fundamental imbalances which could not be met merely by additional assistance in the form of WMA from the Reserve Bank. To the extent there was some need for increased limits, the existing structure was retained and increases agreed to within the present formula. Accordingly, the revised minimum balances and limits for normal WMA were raised to Rs.13.0 crore and Rs.130 crore (i.e., 10 times the minimum balances) respectively effective May 1, 1976.

1978 Review

10. As aggregate receipts and disbursements of States as budgeted for 1978-79 were around 26 times their level in 1963, it was felt that limits for RBI’s accommodation should be further revised. The limits for normal WMA were, therefore, raised from Rs.130 crore in 1976 to Rs.260 crore in 1978, i.e., 20 times the minimum balance effective October 1, 1978.

1982 Review

11. To eliminate the incidence of overdraft on an enduring basis which may emerge due to the increased budgetary expenditure of States, it was decided to double RBI’s accommodation. Normal WMA were thus raised from Rs.260 crore to Rs.520 crore (40 times the minimum balance) with effect from July 1, 1982.

1986 Review

12. The limits for WMA were again reviewed in August 1986. It was found that even though receipts and disbursements of States had increased substantially since 1982, when the revision of limits was last made, there was no strong evidence to show that the seasonal gaps in cash flow had increased proportionately. It was also observed that the streamlining of the release of funds by the Central Government to the States and the staggering of the repayment of loans by the States would also help the latter in avoiding serious cash flow problems in any particular month. It was also observed that only seasonal deficits and not structural deficits should be taken care of by WMA from RBI. Nevertheless, in view of representations from States, it was decided to grant a basic increase of 20 per cent over the existing normal limits. As the cash flow problem faced by States was more severe in the first half of the year than in the second half when the position improves with the receipts of money from market borrowings, an additional 10 per cent rise was granted in the first half of the year. The revised limit, effective October 1, 1986 was Rs.676 crore during April - September and Rs.624 crore during October - March.

1988 Review

13. In February 1988, a review of the WMA limits was undertaken in view of the cash flow difficulties reported by the States in incurring emergent expenditure on drought relief. In the financial year 1987-88, four States had got into an OD on several occasions and from the available data it was not possible to indicate whether the OD on each occasion was necessitated purely on account of the expenditure incurred by those States on drought relief. Besides some of the worst affected States had not got into the problem of OD as often as some others where drought relief expenditure had not been a major problem. A regular increase in the limits of WMA, to take care of the difficulties faced in one year, and that too particularly barely a year and a half after the last increase was effected, did not appear necessary. However, having regard to the time lag between expenditure on drought relief incurred which was not budgeted by State Governments and the release of Central assistance, an increase of 40 per cent in normal WMA over the limits in force prior to October 1, 1986 was granted . The limits were uniformly made applicable throughout the year instead of separate limits for the two halves of the year. The revised limits with effect from March 1, 1988 were raised to Rs.744.80 crore.It was also indicated that the above revised WMA limits should remain in force at least for a period of three years.

1993 Review

14. In view of increased liquidity stress faced by them, several States represented for revision of the limits upwards. The issue was examined and on analysis of the financial position of State Governments, the following important observations emerged: (a) majority of the States had availed of the WMA up to the full extent, (b) the number of States running into OD rose sharply and such occurrences became more frequent and for larger amounts since 1992 and (c) during the year 1992-93, all States except three emerged into OD, the period of OD in some cases was as high as 192 days during the year. The RBI suspended payments in respect of six States (payments in respect of two States had to be suspended on more than one occasion).

15. Although number of States had represented that WMA limits should be related to expenditure, a view was taken that such a link would be inappropriate as States which incur expenditure disproportionate to their receipts would be eligible for higher limits, leading to larger deficits. While the main thrust of the policy continued to disallow States to run large deficits, a pragmatic assessment warranted that genuine temporary mismatches in finances of States should be adequately met by WMA from RBI. Having regard to legitimate needs of the State for WMA and the need to maintain monetary control, it was considered desirable to increase WMA to a level where States, which were prudent, were freed from the problem of OD. It was also felt that the linking of WMA limits as multiple of the minimum balance would ensure that relativities among States were not disturbed. Based on the above consideration, normal WMA was raised to Rs.1117.20 crore, i.e., 84 times the minimum balances effective November 1, 1993.

1996 Review

16. A study of the finances of the States based on their budget documents indicated that while there was improvement in some of the major deficit indicators, certain structural weakness persisted in the form of large revenue deficits, rising interest burden, increasing distortions in the pattern of expenditure and minuscule growth in non-tax revenues. It was, however, felt that there was a need to increase WMA to State Governments so that genuine temporary mismatches in finances of State Governments could be adequately met. Having regard to legitimate needs of States, it was considered that WMA should be revised to a level where States which are managing their finances prudently are freed from getting into OD. On a realistic estimate, it was decided that doubling of existing limits for WMA would be reasonable. The limits were accordingly revised to Rs.2,234.40 crore, effective August 1, 1996. Such increased limits amounted to 168 times the minimum balances.

1999 Review

17. On August 19, 1998, an Informal Advisory Committee (IAC) on Ways and Means Advances (WMA), was set up to examine the existing scheme of WMA to State Governments and consider rationalisation of limits, keeping in view, the needs of the State Governments. IAC submitted the Report in November 1998 and recommended the de-linking of WMA limits from the minimum balances and suggested that the average of last three years of revenue receipts and capital expenditure should be the base to which the WMA limits should be linked. The Committee also recommended that WMA limits for special and non-special category States should be computed separately. Accordingly, for fixing the normal WMA limits, the following methodology was adopted: a) The annual average of the total of revenue receipts and capital expenditure was calculated from the accounts for the years 1994-95, 1995-96, 1996-97, as published in the budgets of the States. In non-tax revenue receipts, the receipts on lotteries were taken on a net basis. b) The revised normal WMA limits were worked out applying the ratio of 2.25 per cent for non-special category States and 2.75 per cent for special category States to the three year average of revenue receipts plus capital expenditure of the remaining States.

c) Given the problems of adjustment in the short run, it was considered desirable that for no State the increase in normal WMA limit should be less than forty per cent over the existing limits.

The revised normal WMA limits of Rs.3,941 crore were made effective March 1, 1999.

2001 Review

18. Issues raised by several State Governments to liberalise the WMA and OD scheme were discussed in detail in the conference of State Finance Secretaries held on November 3 and 4, 2000 at RBI. It was decided in that Conference that the implementation of WMA facility/OD Regulation Scheme, as per the recommendations of IAC, should be looked into by an Informal Group of State Finance Secretaries (GFS). Accordingly, GFS consisting of Finance Secretaries of five States, (viz., Andhra Pradesh, Kerala, Manipur, Uttar Pradesh and West Bengal) was constituted. The Group submitted its Report to the Reserve Bank on January 3, 2001.

19. Based on the recommendations of GFS, the revised WMA Scheme, which was called "WMA Scheme 2001" ,came into effect from February 1, 2001. It was decided by RBI that the scheme would be reviewed in its entirety at the end of two years with a view to bringing the revisions into effect from the third year, viz., April 1, 2003. It was also decided that the normal WMA limits would be worked out taking into account the three years’ average of revenue receipts and capital expenditure for fiscal years 1997-98,

1998-99 and 1999-2000 and to this base a ratio of 2.4 per cent would be applied for the non-special category States and 2.9 per cent for the special category States. Accordingly, the total revised normal WMA limits worked out to Rs.5,283 crore as against the then current limit of Rs.3,941 crore representing an increase of Rs.1,342 crore or about 34 per cent.

Annual Revision of WMA limits in 2002

20. As per the recommendation of the GFS that the ratio be fixed but, with the change in the base, the limits be revised annually, the revised WMA limits were computed for the year 2002-03. In respect of the reorganised States the data for 1998-99 and 1999-2000 have been apportioned between the existing and new State according to the revenue sharing formula. For 2000-01, in respect of the new States, viz., Uttaranchal, Chattisgarh and Jharkhand, the five month data (November 2000 - March 2001) supplied by the States has been added to the seven month data derived from the data of the parent State ( viz., UP, MP and Bihar respectively) on a proportionate basis using the revenue sharing formula. The data for 2000-01 for the parent States has been correspondingly reduced. Uttaranchal, which during the last revision was a non-special category State, was subsequently been brought under the special category. Consequently, its WMA limit was calculated with reference to the ratio of 2.9 per cent. All the proposed limits were rounded off to the next higher multiple of 5 with a minimum limit of Rs.50 crore for any State. Accordingly, the revised limits of WMA for the States rose from Rs.5,283 crore to Rs.6,035 crore, effective April 1, 2002.

21. The movements in minimum balances and the WMA limits are furnished in the Appendix.

Appendix: Minimum Balances and Limits of WMA of State Governments
(Rupees crore)
Sr.	Date		Minimum Balance		WMA limits (expressed as a
No.			(Total for all States)		multiple of the minimum balance)
					Normal / Clean	Special/ Secured
1	2		3		4	5
1.	April 1, 1937 (effective		1.95		1	*
	April 1, 1938) (Provincial				(1.95)
	Government / Part A States)
2.	April 1, 1953 (Part A and
	Part B States)	a)	3.94 on Friday		2	2.00 for each State
		b)	3.38 on day other than Friday		(7.88)
		c)	4.50 before repayment of
			Ways and Means Advances
3.	March 1, 1967		6.25		3	6
					(18.75)	(37.50)
4.	May 1, 1972		6.50 +		12	6
					(78.0)	(42.66)
5.	May 1, 1976		13.0		10	10
					(130.0)	(130.0)
6.	October 1, 1978		13.0		20	10
					(260.0)	(130.0)
7.	July 1, 1982		13.0		40	20
					(520.0)	(260.0)
8.	October 1, 1986
	a) April - September		13.0		52	20
					(676.0)	(260.0)
	b) October - March		13.0		48	20
					(624.0)	(260.0)
9.	March 1, 1988		13.30 ##		56	20
					(744.80)	(266.0)
10.	November 1, 1993		13.30		84	32
					(1,117.20)	(425.60)
11.	August 1, 1996		13.30		168	64
					(2,234.40)	(852.20)
12.	March 1, 1999		41.04**		(3,941.00)#	++
13.	February 1, 2001		41.04		(5,283.00)	++
14	April 1, 2002		41.04		(6,035.00)	++
Figures in brackets in columns 3 and 4 are the total monetary limits for all the States * Secured Ways and Means Advances were occasionally granted on an ad hoc basis. + The increase of Rs.0.25 crore over the figure for 1967 was due to the fixation of minimum balances for four States viz. Himachal pradesh, Manipur, Meghalaya and Tripura. There was no revision for other States. ** The minimum balance revised upwards linking it to the same base as for WMA. The base for the revised WMA limits will be three- year average of revenue receipts plus capital expenditure. ++ The limits for special WMA liberalised, no upper limit on Special WMA, which is being provided against the actual holdings of Central Government Securities. # The aggregate amount applicable in March 1999 was Rs.3,685 crore on the basis of the recommendation of IAC. On bifurcation of Bihar, Madhya Pradesh and Uttar Pradesh, interim limits were granted to the six reorganised States effective November 2000. ## Joining of Goa raised the minimum balance by Rs.0.30 crore.

Annexe-II.II

Special Ways and Means Advances: A Historical Review

1. The State Governments are sanctioned Special Ways and Means Advances based on their holdings in Government of India (GOI) dated securities/ Treasury Bills since 1953. The States are free to participate in 91 and 364 day Treasury Bills auctions as well as those of GOI dated securities as non-competitive bidders for investment of their durable surplus and also reinvest the maturity proceeds of the existing holdings in GOI dated securities/Treasury Bills. Against these holdings, State Governments were allowed advances subject to the ceiling amount arrived at multiples of the minimum balances.

The ceilings on Special WMA

2. In 1953, a limit of Rs.2.00 crore against the pledge of Central Government securities was granted to each State as special or secured advances over and above the normal WMA. This limit was not rigorously enforced and special advances in excess of Rs.2 crore were on occasions granted. In 1967, the limits were revised to twice the level of normal WMA and amounted to Rs.37.50 crore. The limits were raised to 10 times the revised minimum balances to Rs.130 crore with effect from May 1, 1976. In 1982, the limits were again raised to Rs.260 crore 20 times the minimum balance. In 1988, with a increase in minimum balance due to joining of Goa, amount of Special WMA was raised to Rs.266 crore though there was no change in the multiple of minimum balance. In 1993 and 1996, the limits were raised substantially to Rs.425.60 crore and 851.20 crore implying 32 times and 64 times of the minimum balances, respectively.

Liberalisation by the IAC

3. The scheme of Special WMA was liberalised and such ceiling was removed following the implementation of the recommendations of the IAC in 1999. Since 1999 the limits are directly proportional to the holdings by the State Governments in the GOI dated securities and Treasury Bills with no ceiling. The limits for Special WMA are revised by the Reserve Bank on a quarterly basis, taking into account the market prices of the securities as on the last day of the immediate preceding quarter. In case of variation in the holdings of Treasury Bills, the limits are revised immediately.

Margin

4. The margins presently applicable are five per cent for market risk and additional five per cent for securities with residual maturity of less than 10 years or 10 per cent for securities with residual maturity of more than 10 years.

5. Thus, the limits effectively work out to around 90 per cent and 85 per cent of the market price of the holdings with less than 10 years residual maturity and 10 years or more residual maturity respectively. The underlying rationale for discrimination of limits on the basis of tenor was that the risk sensitivity in case of fluctuations of prices of securities is more for long-term dated securities than for short-term dated securities.

Annexe-II.III

Overdrafts of State Governments: A Historical Review

1. States’ overdrafts (OD) with Reserve Bank of India (RBI) represent their drawals exceeding the authorised limits of WMA, both normal and special. Such OD is not reckoned in the monetary and credit arrangement for the year and continued usage of the instrument is likely to disturb the principle of distributive justice amongst the States. Avoidance of situations leading to OD was to an extent facilitated by the progressive enhancement in the limits for authorised accommodation by way of normal and special WMA limits. Also, the Central Government has regularly been providing resources to the States to recover from the OD with the Reserve Bank. Nevertheless, OD persists.

2. The OD regulation scheme was first introduced in 1972. Since then, the scheme has regularly been revisited. The salient features of these schemes have been described below:

Overdraft Regulation Scheme, 1972

3. The Central Government was concerned with the disquieting trend in the size of OD which some of the States were having with the Reserve Bank. Despite the Central Government’s efforts to bridge the non-Plan gaps of certain States through special assistance, the OD of the State Governments with the Reserve Bank continued to increase and reached a record level of Rs.642 crore at the end of April, 1972. The Central Government helped to clear them by giving the States WMA to the extent of Rs.416 crore and by advance release of Plan assistance and share in the divisible tax pool due to them. Under the new procedure introduced with effect from May 1, 1972, no OD was allowed by RBI except for a purely temporary period of seven days. In case, a State Government’s overdraft continued to exceed seven days, suspension of payment on behalf of the concerned State Government became automatic.

Overdraft Regulation Scheme, 1978

4. States again reverted to OD from 1974 onwards. The Centre had to regularly provide assistance to States to clear their OD as the States were not doing enough to raise resources. To avoid a recurrence of such OD, the Central Government, the Planning Commission and the Reserve Bank worked out a regulated system of overdrafts which came into effect from October 1, 1978. Under this scheme, Centre granted special medium-term non-Plan loans amounting to Rs.555 crore to 11 States to clear their OD with RBI. It was also decided that if a State Government was indebted to RBI for more than 45 days even within the limits of the WMA, the position would be discussed with the concerned State Government to devise such corrective measures as may be called for. As soon as any State Government availed itself of 75 per cent of the authorised WMA limit, RBI would caution the State Government. If, despite caution, the State Government’s account continued to be overdrawn for more than seven working days, RBI would automatically suspend payments of the State Governments which would not be resumed until the OD has been cleared.

Overdraft Regulation Scheme, 1982

5. The accumulated deficits of the States had amounted to Rs.1,743 crore in 1981-82 and it became imperative to take steps to prevent continuation of this practice. The States, which had over-drawn their accounts with the Reserve Bank persistently, were advised to take effective steps immediately so as to ensure clearance/avoidance of the ODs. In order to bring about the much-needed financial discipline among the States, the Government of India, in consultation with RBI, evolved a package of measures to enable the States to clear their ODs from July 1, 1982. States were granted Rs.1,743 crore by way of medium-term loans to clear their closing deficits as on March 31, 1982. These loans were for a period of 10 years in case of special category States and for five years in respect of other States, excluding a moratorium of one year on repayment of principal and interest. The States were also provided with additional amount of Rs.787 crores as short-term assistance to clear the additional deficits incurred by them between April 1, 1982 and June 30, 1982. This assistance, which was in the form of advance release of Central transfers was, however, to be adjusted during the course of the current year.

Overdraft Regulation Scheme, 1985

6. Despite the assistance given by the Government of India in 1982 and the Overdraft Regulation Scheme introduced from May 1, 1972 there had been widespread recourse to OD regularly by a number of States. In addition to the increased limits on WMA from the Reserve Bank, the Government of India had to provide ad hoc assistance, on a number of occasions, to State Governments to clear their OD with the Reserve Bank.

7. The recurrence of OD encouraged Government of India, to evolve a scheme with RBI. Under the Scheme, the Centre extended on October 1, 1985 medium-term loans of Rs.1,628.01 crore to 17 States, equal to 90 per cent of their OD as on January 28, 1985 with the balance was left to be cleared by the States themselves through their own efforts. All the ODs were cleared on October 1, 1985. The Centre then advised the States that thereafter they should have no OD with the Reserve Bank and in case any OD appeared in any State Government account and remained beyond seven continuous working days, the Reserve Bank would stop payments on that Government’s account.

Overdraft Regulation Scheme - Liberalisation in 1993

8. The Overdraft Regulation Scheme, 1985 worked satisfactorily. Based on the representations from certain State governments, RBI introduced some flexibility in the above scheme by enhancing the period for which a State government could run on OD from seven working days to 10 working days with effect from November 1, 1993.

Overdraft Regulation Scheme 1999

9. The Overdraft Regulation Scheme which was made applicable to the State Governments with effect from April 1, 1999, as per the recommendations of the IAC was as under:

a) No State shall be allowed to run an OD with the Reserve Bank for more than 10 consecutive working days. In case the OD appears in the State’s account and remains beyond 10 consecutive working days, RBI and its agencies shall stop payments on behalf of the State.

b) The OD shall not exceed 100 per cent of the normal WMA limit for more than three days. On the first occasion of such excess drawal beyond three days in a financial year the RBI shall advise the State that the OD amount should not exceed 100 per cent of normal WMA limit on any subsequent occasion.

c) Without prejudice to clause (a) above, if during the financial year the amount of OD exceeds 100 per cent of WMA limit on a second or any subsequent occasion, the State shall be given only three working days notice to bring down the OD amount within the level of 100 per cent of normal WMA limit. If this is not adhered to, payments will be stopped.

10. As a measure of discipline, IAC had recommended that no State shall be allowed to run an OD with RBI for more than 20 working days during a quarter in a financial year and in case, this limit exceeded, RBI shall stop payments. The number of working days during which the payments have been suspended shall not be taken into account in calculating the 20 working days. For this purpose the financial year shall be divided into four quarters commencing on April 1, July 1, October 1 and January 1. However, while other recommendations were accepted, implementation of the above suggestion to restrict number of overdraft in a quarter to 20 working days was deferred for two years, i.e., upto April 2001.

Overdraft Regulation Scheme 2001

11. Keeping in view the recommendations of the GSF and the difficulties represented by the States in regard to cash flow management, it was decided to increase the 10 working days limit in OD to 12 working days as an ad-hoc measure subject to review. Furthermore, as recommended by the Group, for facilitating cash flow management, it has been decided to extend the duration of three days within which a State has to bring down the OD level within the level of 100 per cent normal WMA limit to five days. Implementation of the recommendation of the IAC that no State shall be allowed to run OD with RBI for more than 20 working days during a quarter in a financial year was deferred again for another year.

Annexure II.IV
Interest Rates on WMA and OD - Historical Trend
Sr. No	Period	Normal WMA		Special WMA		OD
1	2	3		4		5
1	Prior to March 1967	1% below Bank Rate		i)	Up to Rs.50 lakh -	Bank Rate
					1/4% below Bank Rate
				ii)	Rs.51 lakh to
					Rs.125 lakh -
					1/2% below Bank Rate
					on the entire amount
				iii)	Over Rs.125 lakh -
					Bank Rate on the
					entire amount
2	March 1967 to	1% below Bank Rate		1% below Bank Rate		Bank Rate
	April 1976
3	May 1976 to	i)	First 90 days -	i)	First 90 days -	1) For 7 days
	August 1996		1% below Bank Rate		1% below Bank Rate	Bank Rate
		ii)	91-180 days -	ii)	91-180 days -	2) From 8th day
			1% above		1% above	onwards- 3% above
			Bank Rate		Bank Rate	Bank Rate
		iii)	Beyond 180	iii) Beyond 180
			days - 2% above		days - 2% above
			Bank Rate		Bank Rate
4	August 1, 1996 to	Bank Rate		Bank Rate		Bank Rate
	January 15, 1998					plus 3%
5	Jan 16, 1998 to	2% below Bank Rate		2% below Bank Rate		Bank Rate
	March 18, 1998
6	March 19, 1998 to	1.5% below Bank Rate		1.5% below Bank Rate		0.5% above Bank Rate
	April 2, 1998
7	April 3 to	1% below Bank Rate		1% below Bank Rate		1% above Bank Rate
	April 28, 1998
8	April 29, 1998 to	Bank Rate		Bank Rate		2% above Bank Rate
	the present

Annexure III.I
WMA, Special WMA, Overdraft and Investment in Intermediate Treasury Bills- Weekly Averages
(Rs. crore)
Month	Normal WMA				Special WMA				Overdraft				Investment in Intermediate
													Treasury Bills
	1999-	2000-	2001-	2002-	1999-	2000-	2001-	2002-	1999-	2000-	2001-	2002-	1999-	2000-	2001-	2002-
	2000	01	02	03	2000	01	02	03	2000	01	02	03	2000	01	02	03
1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17
April	1,175	2,288	3,925	2,924	176	767	666	835	1,420	2,392	1,863	2,987	6,322	1,481	2,832	1,652
May	1,091	1,610	2,638	2,961	155	496	345	480	174	469	681	1,428	6,560	1,610	3,483	2,404
June	1,198	1,464	2,223	3,007	333	478	331	559	183	467	508	1,022	6,761	2,550	4,664	3,670
July	1,663	2,376	2,875	3,295	429	879	491	658	397	546	863	1,252	5,619	1,486	4,219	2,727
August	1,377	1,775	2,798	2,058	333	344	539	507	316	368	911	817	6,110	3,170	2,916	4,367
September	1,215	1,791	3,542	2,875	135	535	760	610	286	460	1,851	924	6,644	3,190	1,764	4,389
October	1,742	2,554	3,586	3,238	516	681	652	709	518	935	1,693	1,860	5,485	1,645	1,704	3,156
November	2,087	2,770	3,730	3,673	758	602	769	704	784	983	1,990	1,575	3,398	1,244	1,595	2,396
December	2,055	2,387	4,244	4,454	723	806	950	833	895	921	2,292	1,407	2,630	2,066	1,232	2,440
January	2,456	2,862	4,217		945	927	951		1,053	1,058	2,024		1,571	1,808	1,067
February	2,458	3,398	3,506		810	583	922		1,003	765	1,733		1,690	2,678	1,437
March	2,366	3,481	3,746		853	704	839		1,863	2,109	2,447		1,319	2,726	955

Annexure III.II
Major Fiscal Indicators of States - Aggregate Position
(Rs. crore)
	Year	Gross	Revenue	Capital	Net	Loans from	Market	Special	Others
		Fiscal	Deficit	Outlay	Lending	the Central	Borrowings	Securities	#
		Deficit	(RD)			Government	(net)	Issued to
		(GFD)				(net)		NSSF
	1	2	3	4	5	6	7	8	9
1990-91		18,787	5,309	9,223	4,255	9,978	2,556		6,253
		(3.3)	(0.9)	(49.1)	(22.6)	(53.1)	(13.6)		(33.3)
1995-96		31,426	8,201	1,895	4,731	14,801	5,888		10,737
		(2.6)	(0.7)	(58.9)	(15.1)	(47.1)	(18.7)		(34.2)
1997-98		44,200	16,333	22.802	5,065	23,676	7,280		13,244
		(2.9)	(1.1)	(51.6)	(11.5)	(53.6)	(16.5)		(30.0)
1998-99		74,254	43,642	23,072	8,045	31,057	10,467		32,730
		(4.2)	(2.5)	(31.1)	(10.8)	(41.8)	(14.1)		(44.1)
1999-00		91,480	53,797	25,512	12,171	12,408*	12,663		66,409
		(4.7)	(2.7)	(27.9)	(13.3)	(13.6)	(13.8)		(72.6)
2000-01		87,279	51,315	25,512	12,171	8,254*	12,519	31,704	34,802
		(4.2)	(2.5)	(27.9)	(13.3)	(9.5)	(14.3)	(36.3)	(39.9)
2001-02 (RE)		1,06,595	60,540	38,333	7,721	13,287*	16,074	36,200	41,034
		(4.6)	(2.6)	(36.0)	(7.2)	(12.5)	(15.1)	(34.0)	(38.5)
2002-03 (BE)		1,03,736	49,112	43,684	10,940	18,548*	11,845	37,899	35,445
		(4.1)	(1.9)	(42.1)	(10.5)	(17.9)	(11.4)	(36.5)	(34.2)
BE : Budget Estimate. RE : Revised Estimate. # Includes loans from Financial Institutions, Provident Funds, Reserve Funds, Deposits and Advances, etc. * Excluding States’ share in small savings. Note: Figures in brackets indicate percentage to GDP at current market prices for columns 2&3 and GFD for other columns. Source:RBI Bulletin, October 2002

Annexure III.III
Major Fiscal Indicators of States - Growth Rates
(Amount in Rs. crore; rate in per cent)
Year	Revenue	Revenue	Capital	Capital	Interest
	Receipts	Expenditure	Receipts	Expenditure	Payments
1	2	3	4	5	6
1997-98	170300	186634	59937	41501	30113
1998-99	176448	220090	86393	46271	35874
1999-00	207201	260998	103575	52891	45172
2000-01	237953	289268	111591	55670	51576
2001-02 (RE)	270885	331440	123532	70131	64502
2002-03 (BE)	306932	355166	118812	75768	72285
Annual Average	12.30	15.44	19.82	14.02	20.98
Growth Rate
(1997-98 to
2002-03)

Annexure - III.IV
Interest Burden on States
Year	Interest	Interest Payment as percentage of
	Payments on	Revenue	Revenue	GDP
	Total Liabilities	Expenditure	Receipts
	(Rs. crore)
1	2	3	4	5
1990-91	8,655	9.52	13.02	1.52
1995-96	21,933	12.35	16.03	1.85
1998-99	35,874	13.48	20.33	2.06
1999-00	45,526	14.26	21.97	2.36
2000-01	51,576	17.83	21.67	2.47
2001-02	64,502	19.46	23.81	2.79

Annexure - III.V
Select Fiscal Indicators-State wise Position
(Rs. crore)
			1997-1998					1999-2000					2000-01 (RE)
Sr.			Gross	Revenue	Revenue	Revenue	Aggre-	Gross	Revenue	Revenue	Revenue	Aggre-	Gross	Revenue	Revenue	Revenue	Aggre-
No.	States		Fiscal	Deficit	Receipts	Expendi-	gate	Fiscal	Deficit	Receipts	Expendi-	gate	Fiscal	Deficit	Receipts	Expendi-	gate
			Deficit			ture	Expendi-	Deficit			ture	Expendi-	Deficit			ture	Expendi-
							ture					ture					ture
1	2		3	4	5	6	7	8	9	10	11	12	13	14	15	16	17
	Non-Special
	Category States
1	Andhra Pradesh		2428	703	13841	14544	17745	4976	1233	16805	18038	22767	7209	3113	19717	22830	28029
2	Bihar		981	264	8693	8957	10216	6108	3550	12579	16128	19548	4884	2961	11385	14345	16946
3	Chhattisgarh												331		2248	2229	2683
4	Goa		125	14	1108	1122	1270	341	209	1228	1437	1614	496	207	1559	1766	2118
5	Gujarat		3175	1018	11125	12143	14875	6792	3617	13900	17517	21466	8422	6859	16371	23230	28330
6	Haryana		1128	719	5898	6617	7805	2133	1185	5767	6952	8359	2406	1033	7036	8069	9752
7	Jharkhand
8	Karnataka		1610	277	10613	10890	12601	4276	2325	12907	15232	17818	4148	2175	14912	17087	19740
9	Kerala		2414	1123	7118	8241	9818	4537	3624	7942	11566	12900	4364	3232	9332	12564	14185
10	Madhya Pradesh		1821	469	11257	11726	14225	3911	2932	13204	16136	17957	3662	2205	13792	15997	18065
11	Maharashtra		6442	2580	20317	22897	27675	11706	4269	25269	29538	38244	9993	6224	30271	36495	43927
12	Orissa		1803	905	4632	5537	6854	3746	2574	5885	1357	10120	3005	1657	7511	9168	11157
13	Punjab		2478	1484	6351	7835	9472	3195	2727	7468	10195	11980	4460	2573	10289	12862	15728
14	Rajasthan		2552	582	8404	8986	12685	5361	3640	9790	13430	16256	4797	2610	12507	15117	18050
15	Tamil Nadu		2122	1364	13587	14951	17333	5382	4400	16328	20728	22627	5781	3922	18396	22318	25143
16	Uttar Pradesh		7576	4624	17571	22195	26626	11099	7253	21495	28748	34615	12279	5819	27624	33443	42541
17	West Bengal		4008	2294	9028	11322	13557	11666	9287	10211	19498	22678	11221	7411	15581	22992	28015
Special Category States
1	ArunachalPradesh		121	-172	837	665	972	59	-199	1020	821	1098	225	114	1136	1022	1383
2	Assam		142	-287	4326	4039	5022	1606	1005	4841	5846	7086	1923	757	6871	7628	10194
3	HimachalPradesh		1202	529	2170	2699	3453	190	106	3715	3822	4714	1574	848	3351	4199	5135
4	Manipur		188	-65	863	798	1133	656	287	1070	1357	1780	231	13	1282	1269	1759
5	Meghalaya		127	-12	697	685	851	209	-16	944	928	1195	280	44	1237	1192	1561
6	Mizoram		124	-60	722	662	870	179	-59	954	894	1161	198	23	1082	1059	1311
7	Nagaland		204	11	993	1004	1230	249	36	1144	1180	1495	359	0	1420	1420	1836
8	Tripura		196	-22	1082	1060	1350	290	23	1438	1461	1773	427	72	1777	1850	2255
9	Uttaranchal
Source : RBI, State Finances- A Study of Budgets, Various Issues.

Annexure III.VI
Select Indicators of Fiscal Stress - State wise position
Sr. No.	States	RD/GFD (per cent)		Ratio of AE over RR
		1999-2000	2000-01 (RE)	1999-00	2000-01 (RE)
1	2	3	4	5	6
	Non-Special
	Category States
1	Andhra Pradesh	24.8	43.2	1.35	1.42
2	Bihar	58.1	60.6	1.55	1.49
3	Goa	61.3	41.8	1.31	1.36
4	Gujarat	53.3	81.4	1.54	1.73
5	Haryana	55.6	42.9	1.45	1.39
6	Karnataka	54.4	52.4	1.38	1.32
7	Kerala	79.9	74.1	1.62	1.52
8	Madhya Pradesh	75.0	60.2	1.36	1.31
9	Maharashtra	36.5	62.3	1.51	1.45
10	Orissa	68.7	55.1	1.72	1.49
11	Punjab	85.4	57.7	1.60	1.53
12	Rajasthan	67.9	54.4	1.66	1.44
13	Tamil Nadu	81.8	67.9	1.39	1.37
14	Uttar Pradesh	65.3	47.4	1.61	1.54
15	West Bengal	79.6	66.0	2.22	1.80
16	Chhattisgarh	-	-	-	-
17	Jharkhand	-	-	-	-
	Special
	Category States
1	Arunachal Pradesh	-335.3	-50.9	1.08	1.22
2	Assam	62.6	39.4	1.46	1.48
3	Himachal Pradesh	56.0	53.9	1.27	1.53
4	Manipur	43.8	-5.4	1.66	1.37
5	Meghalaya	-7.6	-15.8	1.27	1.26
6	Mizoram	-33.1	-11.4	1.22	1.21
7	Nagaland	14.6	0.1	1.31	1.29
8	Tripura	7.8	16.9	1.33	1.27
9	Uttaranchal	-	-	-	-
RE : Revised Estimates.
Source : RBI, State Finances - A Study of Budgets, Various Issues.

Annexure IV. I
Computation of Average Ratios for determination of WMA Limits
Sr. No	States		Average Revenue	Limits as fixed	Column 4	Adjustment
			Receipts for	by the IAC	as % age to	Factor as per
			1994-95 to	in 1999	Column 3	the GFS in 2001*
			1996-97	(Rs. crore)
			(Rs. crore)
1		2	3	4	5	6
	Non-Special Category States
1	Andhra Pradesh		9951.4	288	2.89	0.19
2	Bihar		7404.4	195	2.63	0.18
3	Goa		601.9	24	3.99	0.27
4	Gujarat		8672.8	243	2.80	0.19
5	Haryana		3573.7	99	2.77	0.18
6	Karnataka		8356.2	228	2.73	0.18
7	Kerala		5337.8	144	2.70	0.18
8	Madhya Pradesh		8761.3	221	2.52	0.17
9	Maharashtra		16941.7	483	2.85	0.19
10	Orissa		3917.8	141	3.60	0.24
11	Punjab		4837.5	141	2.91	0.19
12	Rajasthan		6721.7	202	3.01	0.20
13	Tamil Nadu		10577.2	281	2.66	0.18
14	Uttar Pradesh		14499.3	531	3.66	0.24
15	West Bengal		7482.2	235	3.14	0.21
					44.87	2.99
	Average for Non-Special		(44.87+2.99)/15 = 3.19
	Category States
	Special Category States
1	Arunachal Pradesh		722.6	28	3.87	0.21
2	Assam		3397.4	114	3.36	0.18
3	Himachal Pradesh		1683.5	59	3.50	0.19
4	Manipur		697.3	25	3.59	0.20
5	Meghalaya		648.2	25	3.86	0.21
6	Mizoram		611.1	25	4.09	0.22
7	Nagaland		760.2	26	3.42	0.19
8	Tripura		902.5	31	3.43	0.19
					29.12	1.59
	Average for Special
	Category States		(29.12+1.59)/8 = 3.84
* Adjustment Factor -		For Non-Special Category States : 0.15/2.25 = 6.67%
		For Special Category States : 0.15/2.75 = 5.45%