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The small savings we all know about, aren't really all that small anymore. Their role as the piggy bank for the lower middle class is now changing rapidly, and they do not merely represent the small ticket monies of the low earning households.
The amount of money the public has pumped into savings deposits and certificates, essentially the investment instruments targeted at farmers, senior citizens, the girl child, salaried class, and labourers has touched nearly Rs one trillion in the first six months of the financial year (FY21). This is the highest ever contribution in six months, 25 per cent more than last year, and 130 per cent more than the average of the last five years.
This includes the National Savings Certificate, Kisan Vikas Patra (farmer development certificate), Sukanya Samriddhi Yojana (scheme for the prosperity of the girl child), Senior Citizens Savings Scheme, and deposits in the post office: be it savings, term or recurring deposits.
The money incoming in Public Provident Fund, which is largely held by the salaried class, also hit a record, touching the Rs 20,000 crore mark, or 46 per cent more than the April-September average of the past five years.
Overall, small savings have gulped Rs 1.17 trillion from April to September this year, 26 per cent more than the previous. But in those six months, the economy lost 24 per cent in the first three months, and is slated to lose 10 per cent in the second quarter.
A government official who overlooks the small savings administration said that the more well-off individuals are increasingly accessing small savings now.
“It is being observed that the relatively richer or well to do individuals are parking money into these savings to a higher degree than before. It has become more broad based than its original avatar,” he said.
Banks are the nodal points for enrolling into these schemes, and that is facilitating inflows, he said.
D K Joshi, chief economist at Crisil, says that this is the usual behaviour during risky times.
“The data is just reflecting the proclivity to save as a precaution. Savings in most countries go up during times such as now,” he said.
The massive jump in collection by small savings instruments looks more important if we look at bank deposits during this period, especially the demand deposits that broadly represent the savings accounts. The period under consideration is from middle of April till the end of September, as March end data for deposits distorts the data.
Small savings have been offering a healthy premium of about 40 basis points for one-year term deposit, and more than 250 basis points over the bank savings deposit, in the pandemic period. The spread was higher in 2019.
And for two years in a row, small savings inflow has been more than incremental savings bank deposits. In April - September FY20, bank demand deposits accretion was very low at Rs 40,000 crore from mod-April to end of September. Small savings collection was Rs 93,000 crore.
This year, in the same period, the public has deposited Rs 1 trillion, and small savings collections have touched Rs 1.2 trillion.
This is a sharp reversal of the past trend. In the last few years, incremental savings bank deposits have been two to five times the collection in small savings in the first half of financial year.
Time deposits or fixed deposits, on the other hand, have seen an accretion of Rs 4.5 trillion in April - September 2020, substantially higher than the last three years’ average.
This could mean that while people are preferring small savings instruments over savings bank deposits, money flow into banks through long term deposits has also bulged considerably, further showing risk aversion tendencies.
Since 2010 till about 2015, contributions towards small savings were weak, as the boom in housing and construction, as well as gold demand had surged. It is only after 2017 that they began to rise, and beat the previous year’s collection every year.
Till about the late 1990s, the small savings were a part of the Consolidated Fund of India: that is to say, the small monies people contributed till that time, went into the government spending account directly. This was changed when the National Small Savings Fund was established as a public account. The Union as well as state governments took loans from it to finance the fiscal deficit, till about 2016, when most states (barring four) were exempt from mandatory borrowing from the NSSF.
From that point of time, the Union government became the top borrower from the NSSF. It gradually began to dig deeper into the annual small savings collections to finance its fiscal deficit (the shortfall between its revenues and expenditure).
Its borrowing from the NSSF went up five times, from Rs 52,465 crore in 2015-16 to Rs 2.4 trillion in 2019-20 (provisional accounts) and 2020-21 (Budget estimate).
If the current rate of growth in small savings collection continues, the government may lift up more money from the NSSF pool this year. Analysts have noted that to append the enhanced market borrowing of Rs 12 trillion this year, the government may borrow to the tune of Rs 3 trillion from the NSSF, helping the government with deficit financing worth Rs 15 trillion.
