Small savings: The holy cow few finance minister would want to touch

Representational image. Photo: ShutterstockYou could have run an entire quiz session on small savings and, until a a few years ago, you would have even numerous responses from the audience. It is this level of interest that made successive finance ministers wary of changing any clause in these schemes without any endorsement from the best financial brains in the country. For instance there have been as many as 19 committees in the 26 years since the liberalisation of 1991 that have examined the role of small savings windows run by the Government of India. The first of those was the Rangarajan Committee of 1991, set up as part of the liberalisation menu dished out by the then finance minister Manmohan Singh, in his first Budget. Most of these committees were headed by incumbent or retired deputy governors of RBI. It was politically prudent. On Tuesday, when Finance Minister Arun Jaitley announced the merger of these savings into an omnibus Government Savings Promotion Act, he departed from the script. The minister went straight from his Budget announcement to the order without asking for a committee to endorse it. For the middle class today, fed on a diet of mutual funds and insurance, the small savings avenue has clearly fallen off their radar. But they are still a headache for the banking sector. As a percentage of GDP, small savings are now puny compared with their heydays. In FY 2000, gross small savings collections made up 6.57 per cent of GDP. By FY18 this has dipped to just one per cent. As a percentage of the deposit liabilities of scheduled commercial banks, they still make up 10 per cent, and are a small but a significant constituent of the financial sector A third of the money comes from the Public Provident Fund (PPF), set up through an act of Parliament in 1968. It positioned small savings for the first time as long-term investment instrument, that too with government guarantee in an economy where the gross saving was just 12.2 per cent of GDP, measured at market prices. There were post office savings schemes of various tenures but none offered a 15-year savings span.

Source: Business Standard