View: The Central government may not be able to bite the small saving interest bullet for long.

On the evening of Wednesday, March 31, as the financial year was drawing to an end, the finance ministry issued an order to steeply cut administered interest rates on Public Provident Fund (PPF) and small savings schemes, with effect from the very next day, April 1.

For Q1 2021-22, or April-June 2021, it slashed interest on PPF from 7.1% to 6.4%, on the Senior Citizen Savings Scheme from 7.4% to 6.5%; on National Savings Certificate from 6.8% to 5.9%; on the Sukanya Samriddhi Account from 7.6% to 6.9%; and the Kisan Vikas Patra from 6.9% to 6.2%. These were not all. Every administered interest rate under the overall rubric of small savings was cut drastically.

It was an act of fiscal desperation. Here’s why. The revised estimate (RE) of the fiscal deficit (FD) for 2020-21 was a number so large that it takes a while to say it clearly, and would fully take up both lines of a cheque when written in words. It was rupees one million, eight hundred and forty-eight thousand, six hundred and fifty-five crore — ₹1,848,655 crore, or a staggering 9.5% of India’s GDP. It was 98% higher than the actual FD for 2019-20, something we had never witnessed before. Had i ..

But it hasn’t. The budget estimate (BE) of the FD for 2021-22 is also massive at ₹1,506,812 crore, or 6.8% of GDP. Thus, after falling short by ₹1,848,655 crore in the financial year that has just come to an end, GoI expects to fall short yet again in 2021-22 by another ₹1,506,812 crore.

Such massive numbers need to be put in some perspective. So, ₹1,506,812 crore is equivalent to well over 500,000 three-bedroom flats priced at an average of ₹3 crore each, or more than three million mid-range Land Rovers.

FD is nothing but the excess of government expenditure over revenues. It has to be financed by public borrowing that, in turn, involves additional committed interest payments. In 2020-21 (RE), GoI’s interest payment on its public debt was ₹692,290 crore — or 1.38 million Land Rovers — which accounted a fifth of its total expenditure and, more importantly, 43% of its revenue.

For 2021-22 (BE), interest payment is expected to rise by 17% to ₹809,701 crore. That translates to over 1.6 million Land Rovers, 23% of total expenditure and 41% of expected revenues. Thanks to years of fiscal deficits and consequential borrowing, interest payment is by far the largest item of the central government’s expenditure.