NSSF surplus may go to fund core sector

The finance ministry may invest the Rs 12,000-14,000 crore surplus available with the National Small Savings Schemes Fund in long-term infrastructure projects in the current financial year....

The finance ministry may invest the Rs 12,000-14,000 crore surplus available with the National Small Savings Schemes Fund (NSSF) in long-term infrastructure projects in the current financial year. The NSSF corpus comprises the moneys mopped up by states through various small savings schemes. While the states borrow 80 per cent of these funds to fund their own deficits,the balance 20 per cent is retained by the Centre.

We want to invest the NSSF surplus in a more productive manner, a finance ministry official told The Indian Express. With states unwilling to be active borrowers,the ministry has asked the new committee being chaired by RBI deputy governor Shyamla Gopinath to explore more remunerative investment avenues for the NSSF. A key task of the committee will be to look into the manner in which unutilised funds and loan repayments by states are invested,the official said.

The NSSF has been showing surplus balances only in the past three or four years. At present,the surplus funds are invested in in government securities. The fund had invested a small sum of Rs 1,500 crore in India Infrastructure Finance Corporation (IIFCL) bonds a couple of years ago. The new committee is expected to look at other possible instruments such as bonds issued by National Highways Authority of India,Indian Railways Finance Corporation (IRFC) etc,according to the officials.

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Historically,money accumulated through this fund was doled out as loan to states at an interest rate of 9.5 per cent to 10.5 per cent. However,availability of funds at a cheaper rate have taken the sheen out of this funding source. States prefer to borrow from the market through the Reserve Bank of India where the interest rates are softer by almost 150-200 bps. At present,states are obligated to borrow 80 per cent of the funds raised through various small savings schemes under the NSSF including Post Office Savings scheme,National Savings Certificates,Kisan Vikas Patra,Senior Citizens Savings Scheme and Public Provident Fund.

The Thirteenth Finance Commission had recommended a rate of 9 per cent for state borrowings before 2006-07,which has been accepted by the finance ministry. However,the new committee is expected to give a design to the NSSF that makes it more attractive for states to borrow from it.

The design of the fund also needs a re-look as the fund gives long term loans against funds raised from short tenure instruments and there is a mismatch. The new committee will not just look at interest rates of small savings but also the administration of the scheme at the ground level compared to the mandate of two previous committees headed by Rakesh Mohan and Y V Reddy that primarily looked into the interest rates for small savings schemes. The size of the NSSF is huge with outstanding liabilities estimated at Rs 7.5 lakh crore for 2010-2011.