India’s Fiscal Tightrope: The Doubling of Small Savings Schemes Between 2017-18 and 2021-22


In the economic landscape of India, where balancing fiscal deficits and managing debt is a constant challenge, the role of small savings schemes has gained prominence over the years. The period between 2017-18 and 2021-22 witnessed a remarkable doubling in the collections from these schemes, notably the National Small Savings Fund (NSSF), which plays a pivotal role in the Centre’s domestic debt management. However, this surge in small savings scheme collections raises concerns and questions about the sustainability of India’s fiscal strategy.

The Ascendancy of the National Small Savings Fund

The NSSF, which houses collections from various small savings schemes, has seen a substantial increase in its share within the Centre’s domestic debt. In the 2017-18 financial year, the NSSF’s contribution to the domestic debt was significant, but by 2021-22, it had more than doubled, underscoring its growing importance. This substantial growth is partially attributed to the Centre’s reliance on the NSSF to bridge its fiscal deficit, which stood at a staggering ₹315.8 trillion in 2021-22 and is projected to reach ₹17.9 trillion in 2023-24.

While small savings schemes have remained popular with Indian households, fresh collections have been mixed across different schemes. The National Savings Certificate continues to be a preferred choice, but the Public Provident Fund, another widely utilized scheme, has witnessed a decline in fresh collections during this period.

Surging Collections and Fiscal Challenges

During the six-month period from April to September 2023, the government found itself compelled to offer interest rates that were notably higher than prevailing market rates. In this basket of fixed-income schemes, senior citizens’ schemes, in particular, saw a remarkable 2.5 times year-on-year increase, further burdening the Centre’s fiscal position. The persistent reliance on these high-interest schemes raises concerns about India’s fiscal prudence, as it significantly contributes to domestic debt.

The Challenge of Offering High-Interest Rates

The propensity of Indian households to opt for old-fashioned, risk-averse investment choices and prioritize sovereign-backed schemes can be seen as both a boon and a challenge. While it demonstrates the trust and loyalty of the Indian populace towards these schemes, the government’s obligation to offer high interest rates to compete with foreign fixed-income schemes takes a toll on its fiscal stability.

The fiscal deficit, which is the excess of the government’s total spending over its total revenues, is bridged by domestic debt raised from various sources, and the surging collections from small savings schemes certainly contribute to this. However, these high-interest rates eventually lead to higher fiscal deficits, increasing India’s domestic debt, and raising concerns about the sustainability of the fiscal strategy.

Small Savings Schemes – A Mixed Bag

Small savings schemes, such as the Senior Citizen Savings Scheme and the Sukanya Samriddhi Account (targeting the girl child), have contributed significantly to the increasing collections over the years. During this period, collections from savings deposits and certificates shot up by an impressive 61% on a year-on-year basis. While this growth is beneficial for the government, it comes with its share of challenges.

The sustainability of offering high-interest rates in a constantly changing economic landscape is a concern that cannot be overlooked. The Centre’s overreliance on these schemes may lead to an unsustainable debt burden, which could impact the overall fiscal health of the nation.

The doubling of collections from small savings schemes between 2017-18 and 2021-22 has undoubtedly played a crucial role in bridging India’s fiscal deficit. However, it also raises concerns about the sustainability of this strategy. The reliance on high-interest rate schemes to compete with foreign fixed-income options is a double-edged sword that has the potential to burden the government with a growing domestic debt.

As India navigates its fiscal tightrope, it must strike a balance between meeting the needs of its citizens and ensuring the long-term economic stability of the nation. Managing the surge in small savings scheme collections while maintaining fiscal prudence is a challenge that requires careful consideration and strategic planning. In the years ahead, India’s policymakers will face the critical task of finding a sustainable path to fiscal responsibility, ensuring the nation’s financial well-being and stability.

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