Union Cabinet approves the exclusion of States from National Small Savings Fund

The Union Cabinet on 18 January 2017 excluded States and Union Territories except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh from National Small Savings Fund (NSSF) investments with effect from 1 April 2016.

On the occasion, the cabinet also approved one-time loan of Rs 45000 crore from NSSF to Food Corporation of India (FCI) to meet its food subsidy requirements.

Key Highlights
• Arunachal Pradesh will be given loans to the tune of 100 per cent of NSSF collections within its territory, while Delhi, Kerala and Madhya Pradesh will be provided with 50 percent of collections.
• Servicing of interest and principal of debt will be extended to Food Corporation of India through the budget line of Department of Food and Public Distribution.
• The repayment obligation of the FCI in respect of NSSF Loans will be treated as the first charge on the food subsidy released to the Food Corporation of India.
• Moreover, FCI will be required to reduce the amount of its current Cash Credit Limit with the banking consortium to the extent of the NSSF loan amount.
• An agreement will also be signed between FCI, Department of Food and NSSF on the modalities for repayment of interest rate and the restructuring of FCI debt will be made possible within 2-5 years.
• In the future, NSSF will invest on items whose expenditure is ultimately borne by Union Government and the repayment of the principal and interest of that amount would be borne from the Union budget.

Background
The Fourteenth Finance Commission (FFC) in its report recommended that the State Governments shall be excluded from the investment operations of the NSSF as the NSSF loans come at an extra cost to the State Governments as the market rates are considerably lower.

Following this, the Union Cabinet on 22 February 2015 said that this recommendation will be examined in due course in consultation with various stake holders.

Later, except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh, the other States expressed a desire to be excluded from NSSF investments.