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The Union Cabinet has approved providing a one-time loan of ₹45,000 crore from the National Small Savings Fund (NSSF) to the Food Corporation of India (FCI). Further, only four States — Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh — can continue with NSSF investments from the current fiscal.
This decision follows recommendations of the 14th Finance Commission and comes at a time when deposits to NSSF have risen in the wake of demonetisation. The decision is expected to help the government reduce its food subsidy bill as well as keep the deficit in check.
Interest cost reprieveAccording to an official statement, this move will enable FCI to meet its food subsidy requirements and reduce its interest cost.
At present FCI takes working capital loans through a Cash Credit Limit (CCL) and Short Term Loan (STL) at interest rates between 10.01 per cent and 9.40 per cent. Loans from the NSSF will be cheaper as it charges 8.8 per cent annual interest. State governments were allowed to borrow against the deposits from their territory to the NSSF prior to the Cabinet decision. For those states still allowed, Arunachal Pradesh shall be given loans to the tune of 100 per cent of NSSF collections within its territory, whereas Delhi, Kerala and Madhya Pradesh shall be provided 50 per cent of collections.
Further, once the states are excluded from NSSF investments, the investible funds of NSSF with the government will increase and help reduce market borrowings.
The release also said that the balance NSSF shall be at the disposal of the Union Finance Ministry. Deposits from small savings schemes, including saving deposits, certificates and PPF constitute the NSSF. The funds are then invested in the Central and state government securities, and the interest from them is in turn used to pay returns of 7 per cent to 8.5 per cent to small investors.
According to the Union Budget 2016-17, the NSSF is expected to see a deficit of ₹13,087.68 crore. However, data from the Controller General of Accounts reveals that deposits into the NSSF touched ₹1.01 lakh crore between April and November 2016.
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