Eventually, recognizing the fiscal imprudence and inflationary risks engendered by such automatic monetization of government deficits, joint efforts between the Reserve Bank and the government during 1994-1997 limited deficit financing from the Reserve Bank to the capped Ways and Means Advances (WMA).
The Fiscal Responsibility and Budget Management (FRBM) Act of 2003 explicitly prohibited the Reserve Bank from participating in primary issuances of the government securities. Open market operations came to be designed to sterilise the impact on domestic money supply of foreign exchange interventions and/or to meet durable liquidity needs of the economy, rather than to fund deficits.