Cash-strapped Air India Gets Rs1,000 Crore Loan from National Small Savings Fund

Moneylife Digital Team 22 October 2018

Economy & Nation

The government has diverted Rs1,000 crore from the small savings schemes, which are used by common citizens as means of household savings and safe investment, to the ailing national carrier Air India. These schemes include postal deposits (savings account, recurring deposits, time deposits of varying maturities and monthly income schemes), savings certificates (national small savings certificate VIII-NSC and kisan vikas patra- KVP) and social security schemes like public provident fund (PPF) and senior citizens‘ savings scheme (SCSS).

According to reports, Air India has raised Rs1,000 crore from National Small Savings Fund (NSSF) to meet its working capital requirements. Quoting an official from the carrier, a report from Economic Times, says, "We have received Rs1,000 crore by way of loan from the National Small Savings Fund last week. This loan has been availed at a lower interest rate. However, we have to repay the loan amount by March next year."

Air India, which is sitting on a debt pile of over Rs50,000 crore, has been struggling to raise money since last year. At the end of March 2017, the total debt of the carrier was estimated at Rs48,877 crore, including Rs17,360 crore as aircraft loans and Rs31,517 crore as working capital loans.

Replying to a question in Parliament in January 2018, the government had projected Air India's net loss for 2017-18 at Rs3,579 crore.

The airline had also defaulted on salaries besides delay in payments to oil companies, engine makers and aircraft lessors. In June also, Air India borrowed short-term loans worth Rs1,000 crore to pay staff salaries and meet other obligations, following a failed privatisation attempt.

The national carrier had raised Rs6,250 crore from various banks between September and March last fiscal.

Last year, the Union Cabinet allowed Food Corporation of India (FCI) and other State-run entities like National Highway Authority of India and Air India to borrow funds from NSSF.

The government borrowing funds from NSSF, however, comes at a higher cost and could add to the stickiness of interest rates as small savings rate are kept high to ensure adequate inflow in to these schemes, points our Ira Dugal, in her column published by BloombergQuint.

Following recommendations from the 14th finance commission, the government got more room to borrow from the NSSF. This year, for instance, the government is likely to finance more than Rs75,000 crore of its fiscal deficit from the NSSF. Past year, the government financed more than Rs1 lakh crore of its budget or about 17% of its total deficit through NSSF.

On one hand, the government is helping save institutions like IDBI Bank and Infrastructure Leasing and Financial Services (IL&FS) by ripping funds of Life Insurance Corporation of India (LIC). On the other, the government does not even seems to be sparing most reliable and thus popular savings schemes of common citizens.

The NSSF, established in April 1999 in the public accounts of India, is administered by department of economic affairs under the ministry of finance. All deposits under small savings schemes are credited to NSSF and all withdrawals by the depositors are made out of accumulations in the Fund.

NSSF invests the net collections of small savings in the special state government securities (SSGS) as per the sharing formula decided by the government of India. The remaining amount is invested in special Central government securities (SCGS) with the same terms as that for the states. These securities are issued for a period of 25 years, including a moratorium of five years on the principal amount. The special securities carry the rate of interest fixed by the government from time to time.

Comments

User

Ashok Senniappan

6 years ago

Any Institution lending money to Air India will drown along with Air India.

Parimal Shah

6 years ago

The way our finance minister is handling our money in different organizations such as LIC of India, Small savings schemes and so on; the day is not far when India will need its own form of quantitative easing.