Financial Inclusion in India and Its Challenges

Government proposes amendments in small savings schemes


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Government Savings Certificates Act, 1959, Public Provident Fund (PPF) Act, 1968, Government Savings Banks (GSB) Act, 1873, National Savings Certificates, Kisan Vikas Patra, Post Office Savings Bank

Mains level: Encouraging savings and its impact on economy

Merger of different acts governing small saving schemes

  1. Many different small saving schemes have come up over the years, under many different rules and Acts
  2. Government of India has proposed to merge the Government Savings Certificates Act, 1959 and the Public Provident Fund (PPF) Act, 1968, with the Government Savings Banks (GSB) Act, 1873

Various acts and their scope

  1. Government Savings Certificates Act, 1959 covers National Savings Certificates and Kisan Vikas Patra
  2. GSB Act covers Post Office Savings Bank, and banking companies or any other company or institution that the central government may include in this Act

Consolidation of acts and schemes

  1. The main objective in proposing a common Act is to make implementation easier for the depositors
  2. They need not go through different rules and Acts for understanding the provision of various small saving schemes

Other amendments

  1. As per the current PPF Act, it can’t be closed prematurely before completion of five financial years
  2. Under the proposed Bill, benefits of premature closure of Small Savings Schemes may now be introduced to deal with medical emergencies, higher education needs and so on
  3. Investment in Small Savings Schemes can be made by guardian on behalf of minor(s) under the provisions made in the proposed Bill
  4. Provisions have been made more clear for the operation of accounts in the name of physically infirm and differently abled persons


National Savings Certificates

  1. The National Savings Certificate (NSC) is an investment scheme floated by the Government of India
  2. It is a savings bond that allows subscribers to save income tax
  3. The certificates earn a fixed interest, which is currently at the rate of 8.1% per annum
  4. These certificates can also be used as collaterals while taking loans from banks
  5. There is no maximum limit on the purchase of NSCs, but investments of up to Rs 1.5 lakh in the scheme can earn a tax break under Section 80C of the Income Tax Act

Kisan Vikas Patra

  1. Kisan Vikas Patra is a saving certificate scheme which was first launched in 1988 by India Post
  2. Even though this scheme was popular, a Government Committee formed in 2011 suggested that KVP could be misused for purposes like money laundering
  3. This was again reintroduced in 2014 with some changes
  4. Any resident Indian can invest in a KVP scheme and can obtain a certificate either jointly, individually or in the name of a minor
  5. The principal amount invested in KVP will be doubled in a time of 8 years and 4 months or 100 months
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