INVESTMENT LANDSCAPE FOR SMALL SAVINGS IN INDIA
India has been primarily a nation of big savers. Even in these times of pandemic, the personal saving rate in India has remained at 30.1% (down from 32.4% the previous year). Compare this to the United States, largest economy in the world and you would find a personal saving rate of only 7.6%. However, as India remains essentially a developing economy, our GDP per capita remains US$ 7,680 (approximately ₹5.75 lakh annually) as compared to United States US$ 65,112 (approximately ₹ 48.8 Lakh annually). It is due to these reasons that our cumulative effort appears not as significant as most developed economies. However, considering the sheer size of our population, our savings figure is a substantial amount and to harness this, India launched its own small savings scheme for each one its citizen.
Now, what exactly qualifies as small savings? Is it ₹1, 10 or 100? Research over the internet to get an answer to this question, would not yield an exact and accurate answer. ‘Google’ came up with plethora of information ranging from what are all the small savings investment schemes in India to a Gazette notification about change in interest rate on various government schemes, however the fundamental question remained unanswered and that is what exactly is termed as a small savings.
My research to get an answer to this question took me to Department of Economic Affairs and National Savings Institute website. There I learnt about creation of National Small Savings Fund (NSSF) by Government of India since 01 April 1999 within the Public Accounts of India to pool in the money from all Small Saving Schemes (SSSs) all over India into this fund. Collections from all small savings schemes are credited to the NSSF. Similarly, withdrawals under small savings schemes by the depositors are made from this Fund . The money in the account is used by the centre and states to finance their fiscal deficit. The balance in the Fund is invested in Central and State Government Securities.
So coming back to the fundamental question, what is a small savings – well one can start from as low as ₹0 (basic PM Jan Dhan Account) but a saving of ₹50 qualifies you to a basic Post Office account without a cheque book facility, ₹100 can get you a National Savings Certificate and with ₹1000 one can buy Kisan Vikas Patra (KVP – available in denominations of ₹1000, ₹5000, ₹10,000 and ₹50,000) from Post Office which can double this amount in 124 months post 31 March, 2020. With this data, we can say with some degree of certainty that small savings can be termed as savings starting as low as ₹50 per month to an upper cap of ₹1.5 lakh per annum for an individual (the upper cap is obtained from the tax benefit you can accrue under section 80C of Income Tax Act of India). This amount can also sometimes be as high as ₹4.5 lakh for an individual investor who can hold this amount in a Post Office MIS account.
Small Savings Scheme (SSSs) are designed to provide safe and attractive investment options to the public and at the same time to mobilize resources for development being undertaken by the country. The basic philosophy of small savings is to provide a secure avenue for savings by individuals in both rural and urban areas without worrying about safety of their assets. Individuals investing in small saving schemes are not even expected to have basic idea about various financial instruments available in financial markets and their associated risks. The returns are as easy to understand as getting your money doubled in 124 months without the need to understand percentages.
Many a times these individuals may not have access to basic banking services. Over 80 per cent of the 1.54 lakh post offices are in rural areas in India, many of which are in areas with no access to banks, implying that small savings is the only instrument available for formal financial savings in these remote areas. Small savings instruments can be classified under three heads. These are: -
Postal deposits [comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme (MIS)].
Savings Certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patra (KVP)].
Social Security Schemes [(Public Provident Fund (PPF), Sukanya Samridhi Yojna (SSY), PM Jan Dhan Yojna and Senior Citizen’s Savings Scheme (SCSS)].
A concise comparison of each scheme as also its comparison with other saving options available in the market is presented in the table below: -
As is observed from the above table, the hallmark of small savings is extremely low risk instruments available to the investor with a starting amount as low as ₹50 per month. These savings are not subjected to the vagaries of the Financial Markets. At present, investments by NSSF are free from default risk and small savings enjoy the implicit guarantee of the Government of India. The Government of India uses this amount to plug its own fiscal deficit and giving loans to States. NSSF also invests in securities issued by infrastructure companies, such as, IIFCL, NHAI and IRFC that are wholly owned by the Government. However, return on investment (RoI) ranges from 6.8% per annum, 7.4% for Senior Citizens (SCSS) and 7.6 % for girl child under SSY. Based on the risk appetite, an individual can choose these options which are mostly risk averse however, an intelligent investor can choose to spread his investments over various other options available in primary/ secondary markets along with choosing these relatively safe havens.
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 “India Gross Savings Rate [1951 - 2020] [Data & Charts].” https://www.ceicdata.com/en/indicator/india/gross-savings-rate.
 “ U.S. personal saving rate monthly 2020 |
 “Economy of the United States - Wikipedia.” https://en.wikipedia.org/wiki/Economy_of_the_United_States.
 “National Small Savings Fund.” http://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=54.
 “Small Savings | Department of Economic Affairs | MoF | GoI.” https://dea.gov.in/budgetdivision/small-savings.