Budget 2017-18: Explaining how and why Centre is financing fiscal deficit via National Small Savings Fund…

The usual nightmare and hype over India’s Annual Budget for this year is finally over. What should be just a presentation of Statement of Accounts continues to be a mega event of policies and promises (mostly broken).

Anyways, one key is to always see the level of fiscal deficit and the sources of financing the deficit.

  • This table shows the fiscal deficit for 2016-17 has beeb revised upwards slightly from Rs 5.34 lakh crore to Rs 5.343 lakh crore. Next year’s fiscal deficit is pegged at 5.46 lakh crore.
  • In terms of % of GDP, fiscal deficit was pegged at 3.5% of GDP for 2016-17 and revised figure is also 3.5% of GDP. Nest year is pegged at 3.2% of GDP.
  • I don’t know why each budget we raise hype over whether FM will breach fiscal deficit target? We are proved wrong most of the time.

However, what caught my eye was source of financing the deficit . Here, we see the government has lowered its borrowings from market but has increased financing via securities against small savings. These securities are nothing but proceeds of National Small Savings (Kisan Vikas Patra, PPF etc) into special government securities.  (Be warned: Messy tables ahead which could confuse one even more).

Fiscal Deficit (figures in Rs crore) 532791 533904 534274 546532
Borrowings 454743 441830 365848 350228
Securities against small savings 52465 22108 90377 100157
State Provident Funds 11858 12000 13000 14000
Other Receipts (Internal Debts and Public Accounts) -12202 25677 9948 53513
External Debt 12748 19094 14873 15789
Drawdown of Cash Balance 13170 13195 40227 12844

I had written a small paper explaining the linkages of fiscal deficit with NSSF securities earlier. Please read the note first before proceeding on the analysis. That time the government raised G-sec borrowing as there was shortage of funds vis NSSF securities.

Based on the note (had to read it again), I tried to figure this year’s data. The data is in table 7A and 7B of the Receipt Budget file.

  • On Sources side, There has been a large inflow on account of postal deposits (called savings deposits in the table). It was expected at 2050 Cr but they got Rs 57000 cr.
2016-17 2016-17 RE 2017-18
Sources Receipts Disbursements Receipts Disbursements Receipts Disbursements
A. Opening Balance 991069.5 1015225 1103255
B. Collections
1. Savings Deposits 292750 290698.4 420273.1 363219 442809.3 383597.4
2. Savings certificates 31902.1 47258.35 23871.8 21889.79 24983.05 22984.28
3. Public Prov Fund 76008.74 35535.89 60350.38 31355.94 71343.42 32923.74
Total collections (1+2+3) 400660.8 373492.7 504495.3 416464.7 539135.8 439505.4
Change (rec – disb)
Savings Deposits 2051.53 57054.11 59211.98
Savings certificates -15356.3 1982.01 1998.77
Public Prov Fund 40472.85 28994.44 38419.68


  • On applications side, where we get the securities data we see that the money received from NSSF is going mainly to central securities:
Applications 2016-17 2016-17 RE 2017-18
Receipts Disbursements Receipts Disbursements Receipts Disbursements
A. Investments as on 1st April 887353.3 884904.9 994080.5
B. Central Govt Securities (1+2) 3267.34 25375.25 5004 95380.57 8504 108661.2
1. Special Central Govt Securities 3267.34 9000 5004 35000 8504 40000
2. Reinvestment on redemption 16375.25 60380.57 68661.16
C. Special State Govt Securities 34402.7 26375.25 39200.99 13000 41041.59 15000
D. Investment in FCI Bonds 45000
Total Investment in the Year (A+B+C+D)  37670  51751  44205 153381  49546  123661
Source of Fiscal Deficit (Disb- Rec)
Centre 22107.91 90376.57 100157.2
State -8027.45 -26201 -26041.6


As we can see, this is how the centre is getting Rs 90377 cr this year and 100157 cr next year. We saw this data in the first table. In case of confusions do ask as I know it it messy.

Let me also give a brief background to this Centre-State sharing.

Earlier the idea was that States should get maximum share of these securities and their share was to increase to 100%. But in above table we see NSSF not acting as as a source of financing state deficits at all.  Infct, States have to give money towards NSSF to honor their redemptions.

However, due to the recommendations of 14th Finance Commission, the States are not interested in this source of fiscal deficit anymore. This BL report explains:

The government’s move to exempt all but four States from mandatory investment norms for the National Small Savings Fund (NSSF) will not only help the Centre lower its dependence on market borrowings, it will also help keep the fiscal deficit in check, while possibly freeing up more funds for investment into public sector units.

The Cabinet announcement on Wednesday followed recommendations by the 14th and 13th Finance Commissions. It will allow States to borrow from the market at more competitive rates.

Economists believe that it will also increase the investible funds of NSSF with the Centre, and these could be used for other purposes.

“This is a major change in NSSF operations. With the availability of excess savings, States can borrow at cheaper rates from the market. Further, since NSSF is part of the Public Account and is off the Budget, it can allow for greater investments through public sector units,” said DK Srivastava, Chief Policy Adviser, EY (India), and a member of the 12th Finance Commission.


As States recede from NSSF, the burden falls on the centre. It is returns from investment in Central Securities which will help give promised returns to NSSF investors and also help run the NSSF.



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