Govt's small savings collection may not exceed July BE of Rs 4.2 trillion

Shift to new tax regime, steady rates affect collections

The central government’s small savings collections may not exceed the July Budget Estimate of Rs 4.2 trillion, which had already been lowered from the Interim Budget forecast, according to Finance Ministry sources.

 

“We had scaled it (small savings deposits) down from the Interim Budget levels. The latest collections won’t exceed the lower estimate of the July Budget,” said a ministry official.

 

According to sources, the bulk of small savings deposits would come in March. The Interim Budget for FY25 had estimated a net collection of ~4.7 trillion, which was later revised to Rs 4.2 trillion in July 2024.

 

“The government had indicated that they had room to reduce g-sec borrowing. This can potentially come handy to bridge any likely shortfall in small savings,” said Vivek Kumar, economist at QuantEco Research.

 

One reason for the anticipated shortfall, according to experts, is a shift among taxpayers to the new personal Income Tax regime, which has ended tax benefits on certain investments, reducing incentives to invest in small savings schemes.

 

The government uses a mix of cash balance withdrawals, small savings collections and bond market borrowings to finance its fiscal deficit. 

 

With a subscriber base of over 400 million, the small savings scheme portfolio includes 12 instruments, such as the national savings certificate, public provident fund (PPF), Sukanya Samriddhi account, and Kisan Vikas Patra, some of which offer tax benefits.

 

For the three-month period beginning October 1, the government had kept interest rates on various small savings schemes, including PPF and NSC, unchanged — for a third straight quarter.

 

The term of the Mahila Samman Savings Certificate, launched in the FY24 Budget to promote savings among Indian women, will end in March 2025. The scheme, which offers a fixed 7.5 per cent interest rate with a partial withdrawal option, saw a collection of Rs 30,000 crore so far since its launch.

 

The 2023-24 Economic Survey had raised concern over the financialisation of the Indian economy. It had noted that while financial innovations like derivatives and single stock futures were valuable, they might be premature, given India’s current per capita income, potentially affecting underlying savings habits and the channelling of savings into capital formation.

 

The Survey had said that when the pace of financialisation of the economy or financial innovations in the capital markets exceeds economic development – as seen in the Asian financial crisis – things usually run into trouble.