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
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.