An important component of India’s financial savings scenario is the large-scale participation of general public through various small saving schemes initiated by the central government. In this context, the Small Saving Schemes (SSSs) are important source of household savings in India. Different small saving schemes have mobilized money from households and channelized it to government so that the centre and states can finance a prat of their expenditure.
The Central Government operates Small Savings Schemes (SSS) through the nationwide network of about 1.5 lakh post offices, more than 8,000 branches of the Public-Sector Banks and select private sector banks and more than 5 lakh small savings agents.
The Small Savings Schemes can be grouped under three:
- Post office Deposits: Post Office Savings Account, Post Office Time Deposits (1,2,3 and 5 years), Post Office Recurring Deposits, Post Office Monthly Account,
- Savings Certificates: National Savings Certificate (VIII Issue) and Kisan Vikas Patra
- Social Security Schemes: Public Provident Fund, Senior Citizens Savings Scheme, and Sukanya Samriddhi Account.
National Small Savings Fund (NSSF)
- National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different SSSs.
- Collections from all small savings schemes ae credited to the NSSF. Similarly, withdrawals under small savings schemes by the depositors are made out of this Fund.
- The money in the account are used by the centre and states to finance their fiscal deficit. The balance in the Fund is invested in Central and State Government Securities.
- Pattern of utilization of the fund among the centre and states is decided from time to time by the Government of India.
- Objective for the formation of a dedicated fund for small savings is to de-link small savings transactions from the Consolidated Fund of India.
- Since NSSF operates in the Public Account, its transactions do not impact the fiscal deficit of the Centre directly.
- As an instrument in the public account, the balances under NSSF are direct liabilities and constitute a part of the outstanding liabilities of the Centre. The NSSF flows affect the cash position of the Central Government.
Administration of Small Savings or NSSF
- The NSSF is administered by the Government of India, Ministry of Finance under National Small Savings Fund Rules, 2001, which is derived from Article 283(1) of the Constitution.
- Funds collected under SSS are the liabilities of the Union government accounted for in the Public Accounts of India and the government acts like a banker or trustee.
Use of proceeds from NSSF
- As per the recommendations of the Fourteenth Finance Commission, the government has excluded states (except four states) from the use of Small Saving Scheme money. This is because the SSSs have slightly higher interest rate than the loans procured by states.
- The NSSFs will be used by the centre and the interest and principal will be the liability of the central government. Previously, states have used the proceeds from NSSF.
Importance of small savings schemes
Small saving schemes helps to support the social security objectives at the same time, helping as a tool of resource mobilization for the government. Several small saving schemes like Senior Citizens Savings Fund, Sukanya Samridhi Yojana and PPF are supporting social securities of different sections. Government also gives slightly high interest rate for these schemes compared to the average interest in other financial instruments.
Rationalizing the interest rate structure of Small Saving Schemes
The SSSs are similar to bank saving schemes and there is competition between the two. Hence, there is a need to align the interest rate of SSSs with that of bank savings. Government in this regard has aligned the interest rate for SSS with that of government bonds of corresponding maturities. A higher spread is also provided for important SSSs that have social objectives.
Since April 2016, interest rates of all small saving schemes have been revised on a quarterly basis. Interest rate will be fixed on the basis of G-Sec yields of the previous three months.
Interest rate on social development oriented small saving schemes
There are some social development oriented SSSs like- Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme and the Monthly Income Scheme. Government is allowing an interest spread (higher interest rate) for these instruments over their corresponding maturity government securities. These schemes enjoy interest rate spread of 75 bps, 100 bps and 25 bps over the G-sec rate of comparable maturity. The interest rate on the senior citizens scheme is paid quarterly.