Small savings schemes
Also called: post office savings · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 7, Ch 8 "Banks and the Magic of Finance"; Class 12, Ch 5 "Government Budget and the Economy"
Meaning
Small savings schemes are savings products that let the government borrow directly from the public. They include PPF, NSC, post-office deposits and Sukanya Samriddhi. The money collected goes into the National Small Savings Fund (NSSF). The NSSF was set up in 1999-2000 inside the Public Account, and it lends to the Centre to help finance the fiscal deficit. This is part of "net borrowing at home". It is a costly source of funds, because these schemes usually pay interest above market rates.
Example
When a family opens a PPF account at a post office, their money flows into the NSSF. The NSSF then lends it to the Centre. In the past, the NSSF also lent to FCI to cover unpaid food subsidy, which was off-budget borrowing. Budget 2021-22 brought this on budget.
Don't confuse with
- Market borrowings: the government sells G-secs and T-bills in the market, mostly to banks, which must hold them under the SLR (Statutory Liquidity Ratio).
Related concepts
- Deficit financing
- Ways and means advances
- Monetised deficit
- Off-budget borrowing
- Contingent liabilities