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Small-savings fund passed on to states

BS Economy Bureau

With little fanfare, the Centre has been able to phase out the small savings schemes with effect from April 1.

As a result, the entire corpus of the approximately Rs 480 billion small savings will now directly go to states on a back-to-back basis. The YV Reddy Committee had recommended such a course of action.

The saving schemes like the Public Provident Fund, Special Deposit Schemes, state Provident Funds, National Savings Certificates and Kisaan Vikas Patras will, however, continue to be operated by the postal department.

But the entire proceeds of the fund will now go to states, which will also pay the interest charges on them. Earlier, states were getting 80 per cent of the proceeds and the Centre the rest.

This was mooted by the Reddy Committee to give states access to cheaper funds, while relieving the Centre of the burden of servicing the loans.

Senior government officials said the only recommendation of the Reddy Committee report that had not been implemented was giving a preferential tax treatment to long-term savings plans like the PPF.

The proposal, however, is under consideration of the revenue department.

The finance ministry, however, will still be responsible for calibrating the interest rates with the yield on government securities on a bi-annual basis. Sources said the Budget announcement to lower the rates by 50 basis points was only a reflection of that correction, and not a lowering per se.

They said this was also the reason why the government could not introduce any new savings scheme in the Budget because the sector was not under the purview of the Centre anymore.

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