Exclusion of states from National Small Savings Fund investments

Q.  Which of the following is/are true regarding National Small Savings Fund (NSSF)?

1) Once states are excluded from NSSF investments, the investible funds of NSSF with Government of India (GoI) will decrease.
2) NSSF loans to the State Government were cheaper as the market rates are considerably higher.
- Published on 19 Jan 17

a. Only 1
b. Only 2
c. Both 1 and 2
d. Neither 1 nor 2

ANSWER: Neither 1 nor 2
 
  • The Union Cabinet has given its approval to exclude State Governments of States/UTs (with Legislature) except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh from National Small Savings Fund (NSSF) investments from 01.04.2016.
  • It also approved providing a one-time loan of Rs. 45,000 crore from NSSF to Food Corporation of India (FCI) to meet its food subsidy requirements.
  • Arunachal Pradesh shall be given loans to the tune of 100% of NSSF collections within its territory.
  • Delhi, Kerala and Madhya Pradesh shall be provided 50% of collections.
  • Once states are excluded from NSSF investments, the investible funds of NSSF with Gol will increase.
  • Increased availability of the NSSF loan to Gol may reduce the Gol's market borrowings.
  • The States will however, see an increase in market borrowings.
  • Implementing the decision to exclude states from NSSF investments and extending the loan will entail no additional cost.
  • Instead a reduction in the food subsidy bill of the Gol is anticipated.
  • Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh will continue availing of NSSF loans.
  • The Fourteenth Finance Commission (FFC) recommended that State Governments be excluded from the investment operations of the NSSF.
  • The NSSF loans come at an extra cost to the State Government as the market rates are considerably lower.
  • The involvement of States which are excluded from operations of National Small Savings Fund with effect from 1.4.2016 would be limited solely to discharging the outstanding NSSF debt obligations as on 31.3.2016 (FFC Recommendation).
  • The loan contracted by States till 31.3.2016, from the National Small Savings Fund will stand completely repaid by the Financial Year 2038-39.
  • NSSF shall extend a part of its collections to Food Corporation of India (FCI) to meet its food subsidy requirement.
  • This will help the FCI reduce its interest cost.
  • This savings on interest rate outgo will reduce the food subsidy burden of the Government of India.

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