NEW DELHI: The government should give option to investors in
small savings scheme to convert their investment at the time of
maturity to equity of public sector units to reduce its interest
liability and rein in fiscal deficit, industry body Assocham has
The option would provide investors with a better avenue for re-investment
and would also help the government to unlock funds before maturity
period hence reducing its expenditure in the form of interest
payment and creating a positive impact on fiscal deficit, Assocham
said in a release.
The total investments in small savings till date is estimated
at over Rs 2,10,184 crore, as per a study by the chamber on Options
to Convert Small Savings to PSUs equity. The government should
also permit investment of a certain percentage of employees provident
fund into equity which would generate enough resources to meet
the committed liabilities of the fund, it said. The study also
suggested that the Department of Posts should park its surpluses
in the capital market.
The chamber said there should be a ceiling of Rs three lakh
on public investments in government promoted savings schemes like
Kisan Vikas Patra, monthly income schemes of Post Offices, bonds
and senior citizens savings schemes so that the funds above the
upper limit be invested in mutual funds.
An upper limit would refrain investors from parking all their
savings in these instruments, encouraging them to look for mutual
funds, the study said. "If households are encouraged to invest
in mutual funds, it will ensure higher returns for them as mutual
funds schemes carry higher returns and also bring higher liquidity
in the stock market," Assocham said. Since households continue
to invest about two to five per cent of their savings in capital
market instruments, there is a need for providing some incentives
for retail sector to invest in the markets through mutual funds
schemes, Assocham president Anil K Agarwal said.
The study asked the government to allow commercial banks to invest
20 per cent of their excess Stautory Liquidity Ratio, which currently
works out to be Rs 40,000 crore, for buying leading PSUs equities.
The chamber also asked the government to divest its stake in
PSUs by offering their shares to banks and retail investors which
it claims, would ensure world-class development and expansion
and high quality infrastructure.
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