The Union Cabinet on Wednesday approved a loan of Rs 45,000 crore to the FCI out of the National Small Savings Fund, as well as exempted most states and UTs from the mandatory investment norms for funds collected under the NSSF scheme.
"The Union Cabinet has given its approval to exclude states/Union Territories (with legislature) except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh from the National Small Savings Fund (NSSF) investments from April 1, 2016.
"It also approved a one-time loan of Rs 45,000 crore from the NSSF to the Food Corporation of India (FCI) to meet its food subsidy requirements," a Finance Ministry release here said.
The decision to exempt states, except four, from NSSF investments will help them raise cheaper funds from the market and reduce interest outgo, it said.
"Once the states are excluded from NSSF investments, the investible funds of NSSF with government of India will increase," it added.
As for the loan to the FCI to meet its food subsidy requirements, the statement said: "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 FCI. In addition, the FCI shall reduce the amount of its current Cash Credit Limit with the banking consortium to the extent of the NSSF loan amount."
A legally binding agreement will be signed between the FCI, the Department of Food and Public Distribution and the Ministry of Finance on behalf of the NSSF on the modalities of repayment of interest rate and principal. The restructuring of FCI debt will be made possible within 2-5 years.
As for the states kept out of the exemption, Arunachal Pradesh will be given loans to the extent of 100 per cent of NSSF collections within its territory, while Delhi, Kerala and Madhya Pradesh will be provided 50 per cent of collections.
Henceforth, the NSSF will, with approval of the Finance Minister, invest in items whose expenditure is ultimately borne by the government whereas the repayment of principal and interest thereto will be borne from the Union Budget, it said.
The statement said the increased availability of the NSSF loan may reduce the Centre's market borrowings.
"The states will, however, see an increase in market borrowings," it said.
Implementing the decision to exclude states from NSSF investments and extending the loan will entail no additional cost, it said, adding that a reduction in the food subsidy bill of the central government is anticipated.
While 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," the Finance Ministry said.