National Small Savings Fund

The National Small Savings Fund (NSSF) is a government-managed fund established in 1999 under the Public Account of India. It serves as a repository for all collections made through various small savings schemes operated by the Government of India. The fund plays a crucial role in mobilising household savings, financing fiscal needs, and promoting financial inclusion across the country. It forms a vital component of India’s domestic savings framework and supports both central and state government borrowings.

Background and Establishment

Prior to the establishment of the NSSF, collections from small savings schemes were credited to the Consolidated Fund of India, and their utilisation was managed as part of general government revenue. To bring transparency and accountability, the Government of India created the National Small Savings Fund in the Public Account of India from 1 April 1999.
The main objective of setting up the NSSF was to ensure that small savings collections and disbursements are accounted for separately from general revenue and to maintain clear linkage between savings mobilised from the public and their ultimate utilisation.
The creation of the fund was based on the recommendations of the R.V. Gupta Committee on Small Savings (1998), which proposed a self-sustaining structure for small savings instruments.

Structure and Administration

The NSSF is administered by the Ministry of Finance, specifically the Department of Economic Affairs (DEA). It functions as a non-lapsable fund, meaning unspent balances at the end of a financial year are carried forward to the next.
All deposits under small savings schemes are credited to the NSSF, while withdrawals are made for repayments to investors and for lending to governments and other entities.
Key administrative aspects include:

• The Central Government decides the interest rates, terms, and operational details of small savings schemes.
• The Reserve Bank of India (RBI) acts as the banker to the NSSF and manages transactions related to deposits, withdrawals, and investments.
• The National Savings Institute (NSI) under the Ministry of Finance undertakes promotional and awareness activities for small savings.

Sources of Funds

The main sources of receipts for the NSSF include collections from various small savings instruments such as:

• Post Office Savings Account
• National Savings Certificate (NSC)
• Public Provident Fund (PPF)
• Kisan Vikas Patra (KVP)
• Senior Citizens Savings Scheme (SCSS)
• Monthly Income Account Scheme
• Sukanya Samriddhi Account
• Recurring and Time Deposit Accounts

The collections from these schemes are deposited into the NSSF after deducting the agency charges paid to the Department of Posts and banks involved in operating the schemes.

Utilisation of Funds

Funds accumulated in the NSSF are primarily used for lending to the central and state governments, which issue special securities against the loans.

• Central Government Borrowings: A portion of the fund is invested in special government securities issued by the central government, the proceeds of which help finance fiscal requirements.
• State Government Borrowings: State governments also borrow from the NSSF through special securities, especially for financing fiscal deficits or developmental expenditures.
• Investment in Public Sector Entities: Occasionally, the NSSF may invest in public sector undertakings or government agencies for specific social or infrastructure projects.

The interest paid on these loans constitutes the return to small savings investors, ensuring a stable and risk-free investment channel.

Interest Rate Policy

Interest rates on small savings schemes linked to the NSSF are determined by the Government of India on a quarterly basis, based on recommendations of the Shyamala Gopinath Committee (2011). These rates are benchmarked to the yields on government securities of comparable maturity with a spread to ensure investor attractiveness.
The interest rate policy seeks to balance three objectives:

1. Providing a fair return to small investors.
2. Maintaining fiscal discipline by aligning small savings rates with market trends.
3. Ensuring sustainable debt management for both central and state governments.

Accounting and Management Framework

The NSSF maintains a distinct accounting system, separate from the Consolidated Fund.

• All inflows (small savings collections) and outflows (redemptions and interest payments) are reflected in the NSSF accounts.
• The interest earned from government securities forms the income of the NSSF, while the interest payable to investors constitutes its expenditure.
• Any surplus or deficit in the NSSF is carried forward to the next year’s balance.

This structure promotes transparency and financial accountability in managing public savings.

Significance and Role in the Economy

The NSSF plays a multifaceted role in India’s financial system:

• Mobilisation of Domestic Savings: It provides a secure avenue for household savings, especially among rural and low- to middle-income groups.
• Support to Government Financing: NSSF funds are a reliable source of non-market borrowing for both the central and state governments, reducing dependence on external or volatile sources of finance.
• Financial Inclusion: Small savings schemes linked to the NSSF promote savings habits and bring millions of households into the formal financial system.
• Stability of Returns: As interest rates are government-backed, the NSSF offers a stable and low-risk investment option, protecting investors from market fluctuations.
• Counter-Cyclical Support: During periods of low private investment or economic slowdown, the fund provides a steady flow of resources for government spending.

Reforms and Developments

Over the years, the NSSF has undergone several reforms aimed at improving efficiency and aligning its operations with macroeconomic priorities:

• Separation of Central and State Borrowings (2016): Since 2016–17, states have been given the option to discontinue borrowing from the NSSF, allowing them to rely more on market borrowings. Only those states opting in continue to receive NSSF loans.
• Market-linked Interest Rates: The periodic revision of interest rates helps ensure parity with broader financial markets.
• Digitalisation of Small Savings Schemes: Integration with India Post and banking networks has improved accessibility and record management.
• Rationalisation of Administrative Costs: Agency commissions to post offices and banks have been streamlined to enhance fund efficiency.

Challenges

Despite its success, the NSSF faces certain operational and fiscal challenges:

• Interest Rate Rigidity: Higher small savings rates can discourage banks from lowering deposit rates, affecting monetary policy transmission.
• Limited Investment Diversification: The majority of NSSF funds remain invested in government securities, limiting returns and flexibility.
• Rising Interest Obligations: As the fund grows, the interest payments to depositors add to the government’s fiscal burden.
• Coordination with Market Borrowings: Balancing NSSF borrowings with open-market operations is essential for effective debt management.