Cabinet approves the exclusion of States from the investments of National Small Savings Fund from Apr 1, 2016

" It also approved providing a one-time loan of Rs. 45,000 crore from NSSF to Food Corporation of India (FCI) to meet its food subsidy requirements," read a government statement.

Exclusion of States/UTs (with Legislature) excepting Arunachal Pradesh,   Kerala,   Madhya   Pradesh   and   Delhi   from   NSSF Investments. Arunachal Pradesh shall be given loans to the tune of 100% of NSSF collections within its territory, whereas Delhi, Kerala and Madhya Pradesh shall be provided 50% of collections.

  Servicing of interest and principal of debt extended to FCI through the budget line of Department of Food and Public Distribution.

The repayment obligation of the FCI in respect of NSSF Loans would be treated as the first charge on the food subsidy released to the Food Corporation of India. In addition, FCI shall reduce the amount of its current Cash Credit Limit with the banking consortium to the extent of the NSSF loan amount.

NSSF in the future shall, with the approval of Finance Minister, invest on items the expenditure of which is ultimately borne by Government of India and the repayment of principal and interest thereto would be borne from the Union budget.

"The States except Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh shall be excluded from NSSF investments from 01.04.2016. A legally binding agreement will be signed between FCI, Department of Food and Public Distribution and Ministry of Finance on behalf of NSSF on the modalities for repayment of interest rate and principal and the restructuring of FCI debt will be made possible within 2-5 years," read the statement.

"Once states are excluded from NSSF investments, the investible funds of NSSF with Gol will increase.  Increased availability of the NSSF loan to Gol may reduce the Gol's market borrowings. The States will however, see an increase in market borrowings. Any increase in yields due to an increased demand for loanable funds in the market from Centre and States combined would be marginal. The reduction of FCI's borrowing cost equivalent to the extent of the interest differential will be reflected in the Gol's savings on the Food Subsidy Bill," it said.

Implementing the decision to exclude states from NSSF investments and extending the loan will entail no additional cost. Instead a reduction in the food subsidy bill of the Gol is anticipated.

Arunachal Pradesh, Delhi, Kerala and Madhya Pradesh will continue availing of NSSF loans, 26 other States and Puducherry who are eligible to borrow from the market have preferred to stop taking loans from the NSSF.