NEW DELHI, JAN 1: The Centre has to shell out an extra Rs 10,000 crore to state governments on account of the sudden spurt in small savings this year. Unless corrective steps are taken, the fiscal deficit of the union government will widen to this extent.Finance ministry sources said that small savings have gone up to a whopping Rs 34,140 crore (till December 1998) as against a budget estimate of Rs 21,640 crore for whole of 1998-99. The ministry has felt the need for an interest-rate correction on the first day of 1999 because all small savings calculations and disbursements (to state governments) are done on a calendar-year basis. These savings add to the fiscal deficit because the Centre has to transfer 75 per cent of the amount to the states. They, in turn, repay these transfers over a 30-year period. What is more, the Centre also bears an interest subsidy as the transfers to states are conducted at lower interest rates.The ministry claims that the interest-rate cut may not immediately slow downcollections on the small savings front. The on-going recession in the economy and a near-complete absence of activity in the primary market, coupled with the perceived lack of safety in other investment instruments, have forced the ordinary investor to go in for small savings.Looking at trends over the last two years, it is noticed that the spurt in small savings had coincided with the emergence of recessionary trends in the capital market. The budget estimate for small savings in 1997-98 was Rs 14,000 crore while the revised estimate scaled a figure of Rs 25,478 crore. In the current year, the estimate, at Rs 21, 640 crore is way below the real figure.But what will come as some relief for North Block is the savings on the interest front. What it is also expecting is the long-term impact of the cut in rates - that small savings will dip in the course of this calendar year once buoyancy returns to the economy and the capital markets. On the expenditure side, the main worry of the finance ministry hasbeen the spurt in small savings. Otherwise, expenditure on other heads is more or less under control.What is being flaunted as a major achievement is the ability of the BJP-led government to keep outgo under major subsidies - food, fertilisers, decontrolled fertilisers and export promotion - under check. Lower import prices for urea have meant some relief, though this has been offset by the roll back in urea prices and hike in subsidy on decontrolled fertilisers.Ministry sources said that defence expenditure has been kept under check. Outgo on pensions have shown an increase of around Rs 1000 crore - because of recalculation of the impact of the 5th Pay Commission award.
