The Hindu Business Line : NDC sub-panel proposal to provide debt relief to States

The NDC-sub-committee on debt outstandings of the States against the National Small Savings Fund (NSSF) has come up with a slew of recommendations to provide partial debt relief to the States.

Besides a revision in the sharing pattern of the small savings collections between the States and the Centre, the sub-committee has also recommended that the interest rates on NSSF loans taken by State Governments from 1999-2000 to 2002-03 should be reset at 10.5 per cent with effect from April 1, 2007. Interest rates on NSSF loans during these four years ranged between 12.5-13.5 per cent.

The sub-committee, Chaired by the Union Finance Minister, Mr P. Chidambaram, also said that the interest rate on these old loans would be reviewed if the interest rate on the current loans is reduced or after three years, whichever is earlier.

It, however, said that the interest rate on current NSSF loans would continue at 9.5 per cent.

The sub-committee's report formed foremost on the agenda of the 52nd National Development Council meeting here on Saturday.

sharing pattern

On the sharing pattern of small savings collections, the sub-committee has suggested that the States and the Centre should share the collections in 80:20 ratio with the option to the States to take up to 100 per cent of their collections.

The revised sharing pattern will be effective from April 1, 2007.

Currently, the entire net collections from a State are transferred back to the States.

Faced with high cost of NSSF debt, the State Governments had sought reduction in interest rates on past high cost NSSF loans, reduction in the rate of interest on on-lending of current collections and reduction of the share in net collections from the present 100 per cent.

Non-NSSF loans

As per the sub-committee report, the requests of State Governments for additional open market borrowing to enable them to repay non-NSSF loans will be considered on a case-to-case basis. Moreover, requests of State Governments for prepayment of NSSF loans contracted up to 2002-03 would also be considered on a case-to-case basis within the approved market borrowing ceilings.

NSSF was created in the public account of India with effect from January 1, 1999. The Fund is carrying a high income-expenditure deficit on cash basis. Its accumulated deficit at the end of 2006-07 is estimated at around Rs 22,000 crore. Its current weighted average cost of funds is 9.9 per cent whereas it is lending to the States at 9.5 per cent.