Once low-profile NSSF now a key player in Centre's finances for past 7 yrs

While govt's market borrowings have doubled from FY16 to FY22, NSSF loans to finance fiscal deficit have grown 11x

The National Small Savings Fund—the public account which collects money poured in by citizens in post office savings deposits, national savings certificates and public provident funds—is becoming more and more important for the annual expenditure of the central government. 

There are four data points that explain this. 

One, securities drawn against small savings now account for a massive 37 per cent of funds raised to finance the annual fiscal deficit (shortfall between receipts and expenditure).

The central government will borrow Rs 8.76 trillion from the market this financial year (FY22). The loans from NSSF stand at a staggering Rs 5.91 trillion, comparable to market loans. While market borrowings have only doubled from FY16 to FY22, NSSF loans to finance fiscal deficit have grown 11x. 

In FY23, the Union Budget expects that the Centre will borrow Rs 4.25 from the NSSF, considerably lower than in FY22, but nonetheless a large amount. 

Why did the central government borrow so much more every year from the NSSF? 

What else could it have done, when the inflow of contributions from the public at large is bloating like never before? This brings us to the second point. 

Collections in the NSSF have risen from Rs 1.1 trillion in FY16 to Rs 3.6 trillion in FY22—more than trebling in six years. These include savings deposits and certificates as well as public provident fund. In a low-inflation, low-interest-rates regime, interest offered by small savings instruments was substantially more than that offered by other fixed income instruments in the market like bank fixed deposits. 

The government expects FY23 to be no different. The Union Budget 2022-23 pegs collection to be Rs 3.9 trillion, a new record. While the Budget has cut the amount of NSSF loans that the Centre will draw next year, it expects collections to be higher than this year. 

Thirdly, massively growing inflow of small sums of money from the public transforms into trillions of rupees available for deficit financing of the central government. After half a decade of strong flows, total debt of Centre towards NSSF (stock) will rise to nearly Rs 18.6 trillion by the end of this year. 

At the end of FY16, NSSF debt to Centre was merely Rs 2.5 trillion. States on the other hand, were indebted to the tune of Rs 5.7 trillion. Over the last seven years, states have rescued themselves from NSSF debt, and their outstanding would be Rs 3.9 trillion as FY22 ends. 

Centre’s outstanding debt would touch Rs 23 trillion at the end of FY23, according to Budget documents. From FY16, this would mean a 10x jump in seven years. 

As debt stock grows, interest payout is bound to bulge. Fourthly, and finally, Centre’s NSSF interest burden has more than trebled. 

The Centre paid Rs 0.6 trillion as interest towards small savings loans in FY16. In FY22, it will pay Rs 1.7 trillion, which is set to grow to Rs 2.1 trillion in FY23.

As a share of total interest outgo, NSSF’s contribution will grow from 12.6 per cent in FY16 to 20.6 per cent this year, and to 21.9 per cent in FY23.