The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval on January 18, 2017 to exclude States/Union-Territories (with Legislature) except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh from National Small Savings Fund (NSSF) investments effective from April 1, 2016.
- Besides, it also approved to provide a one-time loan of Rs. 45,000 crore to Food Corporation of India (FCI) from NSSF to meet its food subsidy requirements.
Overview
The decision to exclude the State Governments from the investment operations of the NSSF was recommended in the Fourteenth Finance Commission (FFC). These loans were available at an extra cost to the State Government compared to the market rates that are considerably lower.
- On February 22, 2015, the Union Cabinet in its meeting accepted that this recommendation will be examined in consultation with various stake holders. Later, all the State Governments/UTs expressed a desire to be excluded from NSSF investments except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh.
- While Arunachal Pradesh would be eligible to get the loans amounting 100% of NSSF collections within its territory, Delhi, Kerala and Madhya Pradesh shall be provided only 50% of collections.
- For FCI, the interest and principal of debt would be decided by the budget line of Department of Food and Public Distribution while the repayment obligation of the FCI in respect of NSSF Loans would be treated as the first charge on the food subsidy released to the Food Corporation of India.
- FCI would also be required to reduce the amount of its current Cash Credit Limit with the banking consortium to the extent of the NSSF loan amount.
- A legally binding agreement will be signed between FCI, Department of Food and Public Distribution and Ministry of Finance on behalf of NSSF on the modalities for repayment of interest rate and principal
- NSSF can make investment in future with the approval of Finance Minister and the expenditure would ultimately be borne by Government of India and the repayment of principal and interest thereto would be borne from the Union budget.
Benefit of Excluding States & UTs from NSSF
- After the states are excluded from NSSF investments the availability of the investible funds of NSSF with the Government will increase. This will ultimately reduce Government’s market borrowing.
- The reduction of FCI’s borrowing cost will lead to an increase in Government’s savings on the Food Subsidy Bill.
About National Small Savings Fund (NSSF)
The concept of NSSF came into effect on April 1, 1999. It was designed so that all the deposits under small savings schemes are credited to the ‘National Small Savings Fund’ (NSSF), established in the Public Account of India.
- All withdrawals by the depositors are made out of the accumulations in this Fund. The balance in the Fund is invested in special Government securities as per norms decided from time to time by the Central Government.
- The debt servicing of Central/State Government securities is an income of the Fund while the cost of the interest paid to the subscribers and cost of management of small savings schemes are expenditure of the Fund.