Deposits under National Small Savings Fund (NSSF), blamed for additional Rs 50,000 crore market borrowings this fiscal over the Budget target, have fallen over the recent years as administered rate on most of these products are making other instruments more lucrative in the scenario of high interest rate regime.
According to government estimates, deposits under NSSF during the first quarter (April-June) of the current fiscal declined by Rs 26,542 crore. It had increased by Rs 13,250 crore in the same period last year.
However, economists said fall in deposits in these schemes could only partly explain reasons behind the government going for huge extra Rs 52,800 crore of market borrowings this fiscal. They also said the Shyamala Gopinath committee recommendations of linking interest rate on small saving schemes to government securities of comparable maturity would go a long way in making these schemes attractive. However, there are various other factors like interest rates foregone in times of premature withdrawal that would decide collections under them vis-a-vis other debt instruments.
| NATIONAL SMALL SAVINGS FUND | ||
| 2009-10 | 2010-11* | |
| Opening balance of NSSF (as on 1st April) | -14,430 | -2,958 |
| (a) Small savings | 39,532 | 36,190 |
| (b) Public Provident Fund | 24,777 | 22,438 |
| (c) Investment in securities (i) State securities (ii) Central securities | 24,209 13,253 | 43,301 27,696 |
| (d) Income and expenditure of NSSF | -15,375 | -8,650 |
| (e) Net accretion in NSSF (a+b+d-c) | 11,472 | -20,999 |
| Closing balance of NSSF (as on 31st March) | -2,958 | -23,957 |
| Figures in Rs crore; *provisional Source: Ministry of Finance | ||
During last fiscal, net accretion under NSSF decreased by Rs 20,000 crore (see chart). Within NSSF, collections under small savings declined by over Rs 3,000 crore to Rs 36,190 crore.
Small savings schemes include post office deposits, national savings certificates, Indira Vikas Patras, Kisan Vikas Patras, monthly income scheme and senior citizens scheme.
Besides, deposits under NSSF include public provident fund, investment in state securities and central securities.
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The mobilisation between NSSF and bank term deposits depends on the interest rate differentials. Currently, most banks are taking fixed deposits at 9.5 per cent for a period of one year while the returns from the NSSF is around 8 per cent with tax benefits.
Earlier in July, the committee, headed by former RBI Deputy Governor Shyamala Gopinath, had recommended the secondary market yields on central government securities of comparable maturities should be the benchmarks for the small savings instruments (other than savings bank deposits).
“A one-year reference period — taking the average of the month-end secondary market yields in the preceding calendar year — may be adopted... a positive spread of 25 bps, vis-à-vis government securities of similar maturities would contribute to the viability of the NSSF ,” the committee had recommended.
Economists said the recommendations might stem the declining rate of growth in deposits under small saving schemes. “It may possibly help in reversing the trend,” Anis Chakravarty, director with Deloitte, Haskins & Sells, told Business Standard.
He, however, added there are other factors as well that determine growth in these deposits. For example, the liquidity of these schemes in the context of premature withdrawal. Though fixed deposits may also not give full interest rates if deposits are withdrawn prematurely, there are many other alternatives in today’s market where papers can be sold in the market, he said .
“The decline in small savings collections also impacted government cash management”, Finance Ministry said in its quarterly review tabled in Parliament in the monsoon session. Economists, however, said the government move to raise additional Rs 52,800 crore to take it to Rs 2.2 lakh crore in the second half of this fiscal is only partly explained by decline in deposits under NSSF.
“We have to see whether 4.6 per cent of fiscal deficit target comes close to reality,” wondered Chakravarty.