amongst the state governments in may 2006. as on june 30, 2007, eight state governments had set up the grf, of which three had put in place the revised scheme. ways and means advances, and cash management the reserve bank of india ( rbi ) has been extending ways and means advances ( wma ) to state governments since 1937 with the objective of covering temporary mismatches in the cash flows of their receipts and payments. the wma scheme has been periodically revised, right since the early 1950s, in the light of the perceived requirements of the state governments, keeping in view the evolving fiscal, financial and institutional developments as well as the objectives of monetary and fiscal management. state - wise limits in respect of normal and special wma are determined based on certain parameters and have been revised, periodically, over the years. an overdraft ( od ) occurs whenever these limits are exceeded. maximum time - period ( days ) and / or financial limits up to which the state governments can remain in overdraft have been specified ; these limits have also been revised periodically. payments on behalf of the state governments are suspended in case the od limits are breached. till the late 1990s, the normal and special wma limits of state governments were fixed in terms of specified multiples of their minimum balances kept with the rbi. both the minimum balances and the “ multiples ” to obtain the normal wma limits, were revised upwards a number of times ( though not necessarily at the same time ) over the years. there have been strong demands from several states, from time to time, for upward revision of the wma limits. rbi had taken the view that wma is meant for meeting the temporary mismatches in the cash flows and hence, any upward revision in the wma limits to meet structural deficits of the states is inappropriate. the matter remained a contentious issue for some time. the initiation of the conference of state finance secretaries in 1997 induced a transformation in the approach to formulating changes in the wma scheme. distinct from the past, advisory committees were periodically constituted by the reserve bank to review the prevailing wma arrangements and recommend changes, as considered appropriate, in the light of the evolving circumstances. the involvement of experts from outside the reserve bank in such advisory committees helped to strengthen and broad - base the modalities for effecting appropriate changes in the wma scheme. in fact, three advisory committees, that have been constituted so far, have been chaired by experts

reserve bank ’ s standpoint, initiatives relating to credit culture, financial literacy, financial inclusion and priority sector lending would continue to remain high on the policy agenda. concluding remarks rbi has considerable professional skills and the states recognise and value them better when we are willing to consider state - specific orientation to our broader analysis. the rbi, like most of the central banks, commands considerable credibility and good public image and as a public institution is considered relatively apolitical in viewing the vertical relations between the centre and the states and horizontal ones amongst the states. the bi - annual conference of the state finance secretaries sponsored by the rbi has proved to be an excellent forum for wide - ranging discussions. the technical committees or groups that are formed, have membership entirely from the states, though centre may occasionally be associated, but rbi provides secretarial and technical support. the centre and each state concerned decides the appropriate course of actions. the fact that some of the states have adopted a few but not all the recommendations of the committees and groups, demonstrates the shift away from the perceived centralisation of the past towards a participative process. i am happy to submit that all the states, though with varying degrees of enthusiasm, fully endorse the immense contribution of the process of partnering between rbi and the states in the cause of better financial sector and fiscal empowerment in the states. let me conclude with profuse thanks to the madras school of economics for provoking me to think aloud on this subject and share the thoughts with wider audience. the school came into existence in 1995, but very soon, it could obtain “ a ” grade from the national assessment & accreditation council. the ministry of environment and forests has also designated the school as a centre of excellence in environmental economics. i have no doubt that the school would emerge to be an internationally recognised centre of excellence in economic studies attracting the best of students and teachers from different parts of the country as well as other countries. on our part, we in the rbi are in close touch with the school with a view to obtaining their expertise in the process of monetary policy formulation. thank you.