The kitty of the state governments is expected to swell by an additional Rs 9,000 crore every year, as the Centre may soon allow them to retain 100 per cent of the small savings collections, instead of the present 80 per cent.
The committee on interest rates chaired by RBI deputy governor YV Reddy is in favour of this proposal as a back-to-back measure to augment the flow of funds for the cash-strapped state governments.
According to sources, this means that the states will retain the entire amount of small savings deposits mobilised in a year, but with the rider that they will service the interest burden fully. The Centre is inclined to accept the recommendations of the committee, sources said.
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Under the current ratio, the state governments get 80 per cent of the total collections. Accordingly in last fiscal, they got almost Rs 32,000 crore of the Rs 41,000 crore of fresh small savings deposits.
The Reddy committee has favoured surrendering the remaining 20 per cent share of the Centre also to the states. Most of the state governments depend on the small savings collections to finance more than 50 per cent of their plan outlay.
For instance, according to the report of the Expenditure Reforms Commi- ssion, the funds finance 77 per cent of the plan outlay for West Bengal, 63 per cent for Punjab and 33 per cent for Maharashtra.
For the states, the attractiveness of small savings is because though the loans come with an interest rate of 11.5 per cent from the Centre, they are serviceable over a period of more than 20 years. And unlike plan funds, the amount is fungible.
However, with the new proposal, the interest burden will rise for state governments, as the average maturity of the schemes are about five years, but the mismatch in liability was being borne by the Centre.
The committee, which is examining the finance ministers