Govt to dip into small savings fund

Move aims to bridge the gap between budgetary support and demands by states.

The government will tap the National Small Savings Fund (NSSF) to meet states' requirements for externally-aided projects. State governments may be allowed to borrow about Rs 8,000 crore from the fund next year.

The move is an attempt to bridge the gap between the budgetary support given by the finance ministry and the demands made by states. "NSSF will be used to fill the gross budgetary support gap. This arrangement will help everyone," an official said.

The budgetary support for 2006-07 may be upped 19 per cent to nearly Rs 1,71,000 crore, compared to the support of Rs 1,43,497 crore allocated for the present fiscal.

The Prime Minister's Office had earlier directed the finance ministry to meet the GBS requirement of Rs 1,79,000 crore and find out ways for resource allocation to meet the same.

"This is one of the ways to meet the requirement," the official added. Around Rs 35,000 crore is collected in the NSSF every year. "It is like opening another window and utilising the blocked funds," the official added.

While raising funds from the market, prosperous states score over the poor states, further resulting in regional imbalances. Outside borrowing in externally-aided project leads to fiscal pressure.

The new move is likely to benefit the poor states, as it will help them get funds as loan with a return moratorium for five years along with an extended tenure of loan repayment. The utilisation of NSSF will create an opportunity for the states to meet the matching requirement of the projects.