The asset-liability gap in the National Small Savings Fund (NSSF) has reached an alarming level of Rs 36,932.38 crore according to a report by the Committee on Comprehensive Review of NSSF constituted by the Ministry of Finance to recommend on reforms in small savings schemes. Over the years,due to the loss on the income and expenditure account,there has been an excess of liabilities compared to assets built over the years,the report said. If the asset-liability mismatch is allowed to continue,it will create an unsustainable fiscal burden on the government, said Rajiv Kumar,member of the Committee and secretary general,FICCI. All deposits under small savings schemes are credited to NSSF and all withdrawals by the depositors are made out of accumulations in the Fund. The collections under the small savings schemes minus withdrawals are the source of funds for the NSSF. While the interest rates on the loans extended from the net collection of small savings are higher (at 9.5 per cent since 2003) than the effective interest rates on the small savings schemes (at about 8 to 8.5 per cent for various instruments),the interest rate on the re-investments of redemption proceeds (between 5.95 to 8.21 per cent) are low. This is one of the reasons for the losses in the NSSF,says report. The resetting of the interest rates on Special Central Government Securities (SCGS) and Special State Government Securities (SSGS) without a corresponding decline in the interest rates on the liabilities (small savings) side also contributed to the negative spread. There is also a lag of two to three months between the receipts on small savings and investments by NSSF that led to a forgoing of cumulative interest income amounting to Rs 6,298 crore. The report mentions that government followed the philosophy of using small savings as an instrument of social security and did not alter the interest rates in response to the sharp volatility in the market rates after March 2003. Small savings is the only instrument available in the un-banked areas. They are,however,not efficient instruments of providing subvention in the form of higher interest rates in view of the difficulty in identifying and targeting the 'small' savers. Fiscal prudence suggests direct targeting of subsidy exclusively to the socially needy. The committee has recommended an equal share in borrowings from the NSSF between the sovereign and sub-sovereign. To the extent that the rate of interest on borrowings from NSSF is higher than the market rates,the 50:50 share would ensure an equitable burden sharing,the mandatory component for states could be lowered to 50 per cent from current 80 per cent.
