It’s may be a potluck for the Kerala government this month, as it lands in a Rs 350-crore credit soup to keep its employees’ Onam festivities (bonus, pension, salary advance) afloat. With it National Small Savings (NSS)-loan tap locked in penalty, the state government has been forced to turn to market loans from financial institutions like Life Insurance Corporation.
State finance minister TM Thomas Isaac, however, refuses to see the upside of paying a softer interest rate on the market loan compared with the 9.5% NSS rate. “It’s a fatal blow on development expenditure,” he says, mourning the NSS credit’s exit.
When there were more pre-payments than deposits under NSS in Kerala in three months in a row (April, May and June), the Union ministry of finance had hastened to bar the state from approaching ?small savings’ again. The Centre was deaf to the reasoning that the shrinking of NSS deposits was only because of the new norms.
“Several cash-flush outfits like the Toddy Workers’ Welfare Board to Mata Amritanandamayi Mutt are willing to invest, but the revised NSS norms ram the doors on institutional depositors,” says Anitha Kumari, an NSS representative.
Kerala has always cherished NSS as a sanctuary for Plan expenditure. For instance, the state budget estimate for 2007-2008 had factored in Rs 2,700 crore NSS loans (at Rs 225 crore per month). But the sudden small savings backout could leave an ugly footprint on budget actuals to emerge in 2008.
The planner’s anguish is in having to splurge the state’s Reserve Bank-prescribed annual Rs 770 crore net market borrowing entitlement on non-Plan expenditure as Onam festival bonus, salary-pension advances etc. Second, although a festival season market loan has become almost a habit, it has never been as high as Rs 350 crore extra for a month.
Ironically, all these developmental economist jitters could work out into a handsome bunch of interest savings for Kerala.
The NSS credit account would have demanded as much as 9.5% interest. On the contrary, when the state is compelled to go for market loans, especially if it yakes the auction route, the interest rates could be as soft as 8% to 8.5%, say treasury managment experts.
For the Kerala government, feverish at having to cough up Rs 900 crore in salaries, pensions and arrears every month without bruising Plan expenditure, this silver lining is still elusive.
The state government has expressed reservations about the Union finance ministry changing NSS norms to disincentivise traditional investors. As chief minister VS Achuthanandan puts it, the `nation-building’ NSS deposits affords livelihood to thousands of women in the state. After all, killing the golden goose does not finally help anybody.