The
Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its
approval to exclude State Governments States/UTs (with
Legislature) except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh from
National Small Savings Fund (NSSF) investments from 01.04.2016. It also
approved providing a one-time loan of Rs. 45,000 crore from NSSF to Food
Corporation of India (FCI) to meet its food subsidy requirements.
The details are as under:-
a) Exclusion of States/UTs (with Legislature) excepting Arunachal Pradesh, Kerala, Madhya Pradesh and Delhi from NSSF
Investments. Arunachal Pradesh shall be given loans to the tune of 100% of NSSF
collections within its territory, whereas Delhi, Kerala and Madhya Pradesh
shall be provided 50% of collections.
b) Servicing of interest and principal of debt extended to FCI
through the budget line of Department of Food and Public Distribution. The
repayment obligation of the FCI in respect of NSSF Loans would be treated as
the first charge on the food subsidy released to the Food Corporation of India.
In addition, FCI shall reduce the amount of its current Cash Credit Limit with
the banking consortium to the extent of the NSSF loan amount.
c) NSSF in the future shall, with the approval of Finance Minister,
invest on items the expenditure of which is ultimately borne by Government of
India and the repayment of principal and interest thereto would be borne from
the Union budget.
The States except Arunachal Pradesh, Delhi, Kerala and Madhya
Pradesh shall be excluded from NSSF investments from 01.04.2016. A legally
binding agreement will be signed between FCI, Department of Food and Public
Distribution and Ministry of Finance on behalf of NSSF on the modalities for
repayment of interest rate and principal and the restructuring of FCI debt will
be made possible within 2-5 years.
Once states are
excluded from NSSF investments, the investible funds of NSSF with Gol will
increase. Increased availability of the NSSF loan to Gol may reduce the Gol's
market borrowings. The States will however, see an increase in market
borrowings. Any increase in yields due to an increased demand for loanable
funds in the market from Centre and States combined would be marginal. The
reduction of FCI's borrowing cost equivalent to the extent of the interest
differential will be reflected in the Gol's savings on the Food Subsidy Bill.
Implementing the
decision to exclude states from NSSF investments and extending the loan will
entail no additional cost. Instead a reduction in the food subsidy bill of the
Gol is anticipated.
Arunachal
Pradesh, Delhi, Kerala and Madhya Pradesh will continue availing of NSSF loans,
26 other States and Puducherry who are eligible to borrow from the market have
preferred to stop taking loans from the NSSF.
Background:
The Fourteenth
Finance Commission (FFC) recommended that State Governments be excluded from
the investment operations of the NSSF. The NSSF loans come at an extra cost to
the State Government as the market rates are considerably lower. The Union
Cabinet in its meeting held on 22nd February, 2015, accepted that this
recommendation will be examined in due course in consultation with various
stake holders. Barring Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh, the
other State Governments/UTs expressed a desire to be excluded from NSSF
investments. The involvement of States which are excluded from operations of
National Small Savings Fund with effect from 1.4.2016 would be limited solely
to discharging the outstanding NSSF debt obligations as on 31.3.2016 (FFC
Recommendation). The loan contracted by States till 31.3.2016, from the
National Small Savings Fund will stand completely repaid by the Financial Year
2038-39.
NSSF shall extend a part of its collections to Food Corporation of
India (FCI) to meet its food subsidy requirement. This will help the FCI reduce
its interest cost. FCI presently takes working capital loans through Cash
Credit Limit (CCL) at an interest rate of 10.01% and Short Term Loan (STL) at a
weighted average interest rate of 9.40%, whereas the NSSF currently charges
8.8% p.a interest on its loans. This savings on interest rate outgo will reduce
the food subsidy burden of the Government of India.
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AKT/VBA/SH