Small Savings Scheme | Significance & Challenges

Context: Collections under small savings schemes have seen a pickup in April-September, with deposits for the Senior Citizens Savings Scheme surging over 2.5 times year-on-year to Rs 74,675 crore. This marks a 160% increase over Rs 28,715 crore collected in the corresponding period a year ago. 

Small savings schemes

The Government formulated a basket of small savings schemes to meet the varying needs of different groups of small investors. They Include:

  • Postal deposits
  • Savings certificates (National small savings certificate and KVP)
  • Social Security Schemes (PPF and Senior Citizens’ Savings Scheme)
  • Sukanya Samriddhi Scheme

All the collections under the schemes are accrued into a National Small Savings Fund (NSSF) in the Public Account of India. 


  • Social Security: In a country where more than 90% of the workforce belongs to informal sector and are not covered under any statutory social security benefits, small savings schemes provides such social security net to the marginalised sections.
  • Savings rate: Small savings schemes owing to their high interest rates, implicit sovereign guarantee and tax benefits attracts marginal sections and enhances household savings rate of the economy. 
  • Mobilization of resources: Increased small savings would enable the government to borrow its fiscal deficit from National Small Savings Fund instead of depending upon market borrowings. 

Challenges with Small Savings Schemes:

  • Overlapping instruments: At present the small savings schemes basket comprises 12 instruments with overlapping objectives of promotion of savings among ̳small income groups.
  • Viability of NSSF: The asset liability mismatch of NSSF in terms of tenure and increased gap between income of the fund and its expenditure. 
  • Monetary Policy transmission: As the returns on small savings are typically higher than the bank deposits, the cost of funding for the banks increased and are unable to reflect the change in policy rates in their lending rates. 

Keeping in view of the above challenges, the government rationalised the small savings schemes and since 2016, interest rate resetting has been done based on yields of government securities of corresponding maturity with some spread on the scheme for senior citizens, as advised by the Shyamala Gopinath Committee.

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