National Small Savings Fund (NSSF)
So I've been trying to understand the Indian system of
subsidising small savings, the National Small Savings Fund (NSSF).
Most governments, I understand, have such systems in place, whereby
higher interest rates are accorded to small investors - this
doubles up as a subsidy system that encourages savings/investment
and also acts as a source of revenue to government.
In India, until 1999, there was a generic small savings scheme strcuture - which was spread across the Centre and the States, and also across various post offices. This was redrawn in 1999 and the NSSF was created - which is an accounting shell that allows all the revenue from such schemes to be drawn into a single balance sheet. This is then used to meet the obligations of such schemes, with the remainder being invested in Central government securities.
The very first question that raises itself is - why is the investible corpus of the NSSF locked into Central government securities? Is this simply to raise revenue or are there prudential requirements?
The next question is the interest rates on these savings. As of right now they are administered, with an implicit peg of around 50 basis points above the Bank Rate. This peg is designed to encourage savings through NSSF - but what are the implications this has for the other parts of the financial sector? Does it not change incentive structures away from all other financial products?
Hopefully I'll blog sometime soon with more concrete analyses of these. But until then, if anyone knows of any good sources of information, do drop me a line!
In India, until 1999, there was a generic small savings scheme strcuture - which was spread across the Centre and the States, and also across various post offices. This was redrawn in 1999 and the NSSF was created - which is an accounting shell that allows all the revenue from such schemes to be drawn into a single balance sheet. This is then used to meet the obligations of such schemes, with the remainder being invested in Central government securities.
The very first question that raises itself is - why is the investible corpus of the NSSF locked into Central government securities? Is this simply to raise revenue or are there prudential requirements?
The next question is the interest rates on these savings. As of right now they are administered, with an implicit peg of around 50 basis points above the Bank Rate. This peg is designed to encourage savings through NSSF - but what are the implications this has for the other parts of the financial sector? Does it not change incentive structures away from all other financial products?
Hopefully I'll blog sometime soon with more concrete analyses of these. But until then, if anyone knows of any good sources of information, do drop me a line!
0 Comments