News Highlights:
According to calculations made by the RBI, despite numerous small savings instruments (SSIs) having their interest rates raised over the course of the last three quarters, the returns on five of these schemes are still substantially below what they should have brought in.
What are Small Savings Instruments?
- About:
- Small savings instruments help individuals achieve their financial goals over a particular period.
- They are the major source of household savings in India.
- The small savings instrument basket comprises 12 instruments.
- Collections from all small savings instruments are credited to the National Small Savings Fund (NSSF).
- Small savings have emerged as a key source of financing the government deficit, especially after the Covid-19 pandemic led to a ballooning of the government deficit, necessitating a higher need for borrowings.
- Classification:
- They are the major source of household savings in India. The small savings schemes basket can be classified under three categories. They are
- Postal deposits: Post Office Savings Account(SB)​, National Savings Recurring Deposit Account(RD)​​, National Savings Time Deposit Account(TD) etc.
- Savings certificates: National Savings Certificates (VIIIth Issue), Kisan Vikas Patra (KVP) etc.
- Social security schemes: Public Provident Fund (PPF), Senior Citizens ‘Savings Scheme (SCSS) etc.
- Interest rates are reviewed every quarter by the Government for these schemes.
- Rates of Small Saving Instruments:
- The rates for small saving instruments are announced quarterly.
- Theoretically, it is based on yields of G-Secs of the corresponding maturity, but political factors also influence the rate change.
- The Shyamala Gopinath panel (2010) constituted the Small Saving (SS) Scheme had suggested a market-linked interest rate system for SS Schemes.
- The formula for Small Savings Rates:
- It is used to calculate the interest rates for various SSIs in India and is based on the average quarterly yields on G-Secs in the first 3 of the preceding 4 months.
- The formula is used to decide how much interest to pay to savers who invest in SS schemes.
National Small Savings Fund (NSSF):
- About
- The 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.
- Objective:
- 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.
Pic Courtesy: Freepik
Content Source: The Hindu