Small savings mop-up Rs 35,000 cr short

The rise in market-determined interest rates has taken its toll on small saving collections. The mop-up in small savings schemes is likely to fall short of target by about Rs 35,000 crore in the current financial year ending March, a finance ministry official said.

The interest rate on small saving schemes, set by the government, has not been revised since 2003. The Budget had projected small savings collection of Rs 57,500 crore in FY08 compared with the revised estimate of Rs 60,000 crore in the previous year.

Of the total small saving collections in 2007-08, at least Rs 51,750 crore was to be transferred to states as loans. Currently, states have the option to keep 100 or 80 per cent of the small savings collections with them.

In the current year so far, the government has transferred only Rs 11,700 crore to states from small saving collections, compared with Rs 50,200 crore in the same period last year.

The government has given permission to states to borrow from the market to make up for the shortfall in small savings collections. "We have left it to them (states) to borrow more or draw down on cash reserves," the official said.

The states may use a combination of market borrowing and cash drawdown to meet the shortfall, the official said. States are sitting on huge cash piles, and have an investment of about Rs 30,000 crore in 14-day intermediate T-Bills and another Rs 32,000 crore in auction T-Bills.

"Since the 14-day T-bills are as good as cash, states can liquidate them as and when needed," the official said.

Despite the huge surplus, states may keep some cash surplus with them for spending in April and May, when revenue receipts are typically very low, the official said.

The official said the cash surplus is not evenly spread, and some states are regularly borrowing short-term cash from the Reserve Bank of India through the ways and means advances.

The cash position of states is better mainly on higher devolution of taxes from the Central government and introduction of value-added tax.

The states are also benefiting from the boom in the real estate market, with stamp duty and property tax overtaking excise revenues as the second largest source of income after VAT.