Cabinet approves the exclusion of States from the NSSF Investments

Cabinet approves the exclusion of States from the NSSF Investments

Question: The National Small Savings Fund (NSSF) was established in the Public Account of India with effect from …
(a)1st April 1999
(b) 31st March 1999
(c) 26th January 1999
(d) 1st April 2000
Ans: (a)
Related facts:

  • On 18th January, 2017 The Union Cabinet chaired by the Prime Minister Shri Narendra Modi approved to exclude State Governments States/UTs (with Legislature) except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh from National Small Savings Fund (NSSF) investments from 01.04.2016.
  • It also approved providing a one-time loan of Rs. 45,000 crore from NSSF to Food Corporation of India (FCI) to meet its food subsidy requirements.
  • A legally binding agreement will be signed between FCI, Department of Food and Public Distribution and Ministry of Finance on behalf of NSSF on the modalities for repayment of interest rate and principal and the restructuring of FCI debt will be made possible within 2-5 years.
  • NSSF in the future shall, with the approval of Finance Minister, invest on items the expenditure of which is ultimately borne by Government of India and the repayment of principal and interest thereto would be borne from the Union budget.
  • Once states are excluded from NSSF investments, the investible funds of NSSF with the central government will increase. Increased availability of the NSSF loan to government may reduce the it’s market borrowings.
  • Implementing the decision to exclude states from NSSF investments and extending the loan will entail no additional cost. Instead a reduction in the food subsidy bill of the Gol is anticipated.
  • Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh will continue availing of NSSF loans, 26 other States and Puducherry who are eligible to borrow from the market have preferred to stop taking loans from the NSSF.
  • It is to be noted that the National Small Savings Fund’ (NSSF) was established in the Public Account of India with effect from 1st April 1999.

Background:

The Fourteenth Finance Commission (FFC) recommended that State Governments be excluded from the investment operations of the NSSF. The NSSF loans come at an extra cost to the State Government as the market rates are considerably lower. The Union Cabinet in its meeting held on 22nd February, 2015, accepted that this recommendation will be examined in due course in consultation with various stake holders.
Barring Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh, the other State Governments/UTs expressed a desire to be excluded from NSSF investments. The involvement of States which are excluded from operations of National Small Savings Fund with effect from 1.4.2016 would be limited solely to discharging the outstanding NSSF debt obligations as on 31.3.2016 (FFC Recommendation). The loan contracted by States till 31.3.2016, from the National Small Savings Fund will stand completely repaid by the Financial Year 2038-39.

NSSF shall extend a part of its collections to Food Corporation of India (FCI) to meet its food subsidy requirement.

Reference:
http://www.uniindia.com/cabinet-oks-exclusion-of-states-from-national-small-savings-fund-investments-of-from-apr-1-2016/india/news/753389.html
http://pib.nic.in/newsite/PrintRelease.aspx
http://nsiindia.gov.in/InternalPage.aspx?Id_Pk=54