Higher small savings inflows ease strain on govt borrowing

The overall mobilization from these long-term, lock-in-based savings schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC), and Sukanya Samriddhi Yojana helped reduce pressure on market borrowing, even though monthly inflows remained uneven, the officials cited earlier said on the condition of anonymity.

According to department of expenditure data reviewed by Mint, NSSF collections during the first 11 months of FY26 were nearly ₹30,000 crore higher than ₹1.89 trillion recorded in the same period of FY25. The higher mobilization from these schemes provided the government with a stable and relatively low-risk source of funds to finance its fiscal deficit.

The government had pegged FY26 fiscal deficit—the excess of expenditure over revenue that is financed through market borrowings—at 4.4% of gross domestic product, translating into ₹15.58 trillion.

Queries emailed to the finance ministry on Monday remained unanswered till press time.

Given that a large part of small savings flow typically comes in March due to year-end tax-saving-related investments, government officials expect collections to remain close to the revised estimate target of ₹3.72 trillion for FY26, which is higher than ₹2.59 trillion in FY25.

Small savings are a key component of the Centre’s domestic financing strategy. Higher inflows into these schemes allow the government to borrow less from the bond market, which can help contain yields and reduce interest costs. In simple terms, when households invest more in schemes such as PPF, NSC and Senior Citizens Savings Scheme, the government gets access to funds without having to raise as much money through market loans.

Analysts say higher-than-expected inflows into small savings schemes such as PPF and Sukanya Samriddhi Yojana have eased pressure on the Centre’s market borrowing programme.

“The increase in NSSF collections of 21.7% shows that the shift of households towards NSSF instruments is partly a reflection of marginally higher average interest rates on these instruments and the greater certainty of returns, compared to the prevailing and expected uncertainty in other instruments where household savings can be parked,” said D. K. Srivastava, chief policy advisor, EY India.

“The volume of government borrowing is determined by the excess of government expenditures over non-debt receipts and the increase of NSSF collections need not have any impact on the total volume of government borrowing, which is determined by macro considerations. However, the ratios of different sources of borrowing would change and since the NSSF instruments have a relatively higher effective interest rate as compared to other sources of borrowing, including market borrowing, there may be a marginal increase in the effective interest rate on government debt. The longer-term trend, however, has been a reduction in the share of NSSF based borrowing in the government’s gross borrowing,” Srivastava said.

While the FY26 began with strong inflows of nearly ₹70,000 crore in April 2025 and saw healthy additions in June, the July-August period recorded sharp net outflows of over ₹70,000 crore combined, meaning withdrawals exceeded fresh investments. Although inflows recovered in September and October, the pace slowed again in the later months. In comparison, FY25 also saw volatility but with sharper disruptions, including a massive outflow in June.

Economist Indira Rajaraman said that there is no structural shift in household saving behaviour, but rather puzzlement over swings in equity market valuations and the constant up-and-down movement in fixed deposit returns.

“In that context, the relative stability of small savings instruments is attractive. I think what we are seeing is just an aggregation of individual behavior in the midst of terrible uncertainty, no herd behaviour at all. The government should stay with stable deposit rates on small savings instruments which is their biggest attraction. Having positive inflows into NSSF is a good fall-back option in times when yields on government bonds are likely to go up,” said Rajaraman, who was a member of the 13th Finance Commission (2010-2015).