30 Jun 2020

Small savings scheme2 min read

  • Small Saving Schemes (SSSs) are an important source of household savings in India. Different small saving schemes have mobilized money from households and channelized it to the government so that the centre and states can finance a part of their expenditure.
  • The Central Government operates Small Savings Schemes (SSS) through the nationwide network of post offices, Public-Sector Banks and select private sector banks and small savings agents.

Different schemes

  • Post office Deposits: Post Office Savings Account, Post Office Time Deposits (1,2,3 and 5 years), Post Office Recurring Deposits, Post Office Monthly Account,
  • Savings Certificates: National Savings Certificate (VIII Issue) and Kisan Vikas Patra
  • Social Security Schemes: Public Provident Fund, Senior Citizens Savings Scheme, and Sukanya Samriddhi Account.

National Small Savings Fund (NSSF)

  • National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different SSSs.
  • Collections from all small savings schemes are credited to the NSSF. Similarly, withdrawals under small savings schemes by the depositors are made out of this Fund.
  • The money in the account is used by the centre and states to finance their fiscal deficit. The balance in the Fund is invested in Central and State Government Securities.
  • Funds collected under SSS are the liabilities of the Union government accounted for in the Public Accounts of India and government acts like a banker or trustee.
  • As per the recommendations of the Fourteenth Finance Commission, the government has excluded states (except four states) from the use of Small Saving Scheme money. This is because the SSSs have slightly higher interest rates than the loans procured by states.
  • The NSSFs will be used by the centre and the interest and principal will be the liability of the central government. Previously, states have used the proceeds from NSSF.

Importance of small savings schemes

  • Small saving schemes helps to support the social security objectives at the same time, helping as a tool of resource mobilization for the government.
  • Several small saving schemes like Senior Citizens Savings Fund, Sukanya Samridhi Yojana and PPF are supporting social securities of different sections. Government also gives a slightly high interest rate for these schemes compared to the average interest in other financial instruments.

Rationalizing the interest rate structure of Small Saving Schemes

  • The SSSs are similar to bank saving schemes and there is competition between the two. Hence, there is a need to align the interest rate of SSSs with that of bank savings.
  • Since April 2016, interest rates of all small saving schemes have been revised on a quarterly basis. Interest on Financial Markets rate will be fixed on the basis of G-Sec yields of the previous three months.

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