The Union Government is set to increase its reliance on the National Small Savings Fund (NSSF) for borrowing to meet its fiscal deficit requirements for the financial year 2019-20. This move comes amid a broader trend of increased borrowing from the NSSF in recent years. The government’s aim is to lessen the burden on the benchmark 10-year Government securities yield and maintain low borrowing costs via extra budgetary resources (EBR) through public sector undertakings (PSUs).
The Rising Trend of Borrowing from NSSF
Despite this year’s target of 21% being slightly lower than last year’s high of 22.4%, it still remains considerably higher than the mere 3% in FY15. This significant rise underlines the government’s increasing reliance on borrowings from the NSSF. However, it’s important to note that the cost of borrowings from NSSF is often higher than that of market borrowings.
Changes in Borrowing Dynamics Among States
Prior to recent years, states were the primary borrowers from the NSSF. However, with the recommendations of the 14th Finance Commission, they have now shifted their focus to market borrowings (state development loans) to cover their funding needs. This shift in borrowing dynamics was further influenced by the exclusion of States and Union Territories except Arunachal Pradesh, Kerala, Delhi (UT) and Madhya Pradesh from National Small Savings, effective from April 2016. This exclusion has created added space for borrowing by the centre and PSUs.
About the National Small Savings Fund (NSSF)
The NSSF, established in 1999, falls within the Public Account of India and is administered by the Government of India, Ministry of Finance (Department of Economic Affairs) under the National Small Savings Fund (Custody and Investment) Rules, 2001. These rules were framed by the President under Article 283(1) of the Constitution. The NSSF was created with an aim to remove small savings transactions from the Consolidated Fund of India and enable their operation in a transparent and self-sustaining manner.
| Types of Small Savings Instruments |
|---|
| Postal Deposits: savings account, recurring deposits, time deposits of varying maturities, monthly income scheme |
| Savings Certificates: National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP) |
| Social Security Schemes: Public Provident Fund (PPF) and Senior Citizens’ Savings Scheme (SCSS) |
Impact of NSSF Operations on Fiscal Deficit
As the NSSF operates within the public account, its transactions do not have a direct impact on the central government’s fiscal deficit. Furthermore, the structure of the NSSF, which includes postal deposits, savings certificates, and social security schemes like Public Provident Fund (PPF) and Senior Citizens’ Savings Scheme(SCSS), ensures a broad range of saving instruments catering to varied investor needs.