• The Union Government may borrow more funds from the National Small Savings Fund (NSSF) than budgeted for financial year 2019-20 to cover its fiscal deficit requirements.
• It can be noted that the government in past few years has increased its reliance on the borrowings from the NSSF.
• Although the target of 21% for FY-20 is marginally down from 22.4% in FY19, it is significantly higher than 3% in FY15.
• The move will ease pressure on the benchmark 10-year Government securities yield and keep the cost of government borrowings through extra budgetary resources (EBR) via public sector undertakings (PSUs) low.
• However, it is to be noted that the cost of borrowings from NSSF is higher than that for market borrowings.
• The states, who were the prime borrowers from this fund earlier, are now relying more on market borrowings (state development loans) to meet their funding needs as per the recommendations of the 14th Finance commission.
• The exclusion of States and Union Territories except Arunachal Pradesh, Kerala, Delhi (UT) and Madhya Pradesh from National Small Savings from April 2016 has created more room for borrowings by the centre and PSUs.
National Small Savings Fund
• National Small Savings Fund (NSSF) in the Public Account of India was established in 1999.
• The Fund is administered by the Government of India, Ministry of Finance (Department of Economic Affairs) under National Small Savings Fund (Custody and Investment) Rules, 2001, framed by the President under Article 283(1) of the Constitution.
• The objective of NSSF is to de-link small savings transactions from the Consolidated Fund of India and ensure their operation in a transparent and self-sustaining manner.
• Since NSSF operates in the public account, its transactions do not impact the fiscal deficit of the Centre directly.
• Small savings instruments can be classified under three heads:
• Postal deposits (comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme).
• Savings certificates like: National Small Savings Certificate(NSC) and Kisan Vikas Patra (KVP).
• Social security schemes like: Public Provident Fund (PPF) and Senior Citizens‘ Savings Scheme(SCSS)
Mains Paper 3: Economy
Prelims level: National Small Savings Fund
Mains level: Read the story