Small savings collections in 1997-98 are expected to be Rs 4,000 crore more than the projected level of Rs 14,000 crore. The spurt is expected to put pressure on the fiscal deficit, as this constitutes borrowings on the account of the Centre even though only 25 per cent of the collections are retained by the Centre and the balance is transferred to the states. This residual accrual of resources to the Centre alone was responsible for pushing up the fiscal deficit in 1994-95 from 6.2 per cent to 6.7 per cent.
In addition, the Centre has to absorb the interest cost of these additional savings. Under the present system of devolution, the Centre transfers the savings at a lower rate of around 12 per cent as compared to what is offered for the small savings schemes implying an interest subsidy. The states are expected to repay the Centre over a period of 30 years.
The finance ministry has in its recourse to the contingency fund projected an additional transfer of Rs 2,500 crore in small savings transfers (75 per cent of collections) to the states. But officials aver that this could go over Rs 4,000 crore, as collections under the small savings segment continues to rise. Already, in the current year the fiscal deficit is expected to be under pressure in the face of flagging revenues and because of the Centre having to absorb additional unplanned expenditures in the year.
While the revenue shortfall is estimated to be in the region of Rs 10,000-14,000 crore, the government has been able to keep expenditure down to budgeted levels by scaling back plan investments. As compared to the targeted 4.5 per cent of gross domestic product, the actual fiscal deficit is likely to be in the region of 5.5 per cent.
Ministry officials, attribute the spurt to the interest differential on longer maturities between small savings instruments Indira Vikas Patra, Kisan Vikas Patra, Post Office Time Deposits and bank deposits had widened rendering the latter less attractive for the small saver.
A similar spurt had occured in 1994-95 when the government actually collected to the tune of Rs 14,000 crore in the year as compared to the target of Rs 6,000 crore an increase of 133 per cent.
The current fiscal year had witnessed a steep fall in interest rates by nearly 400 basis points forcing the banks to prune their deposit rates.
However, in the wake of the Reserve Bank of India package to shore up the rupee, the interest differential between small savings and banks deposits was virtually wiped out. Officials believe that this will have only a lagged impact and will therefore unfold only in the next fiscal year.
