The advisory committee on administered interest rates chaired by the RBI Deputy Governor Rakesh Mohan met on Friday to deliberate on small savings schemes.

Sources said that the main agenda was the rationalisation of the number of small savings instruments currently offered by the government and the tax treatment on such instruments. The final report is likely to be submitted on May 15.

Friday's meeting was also attended by D Swarup, secretary (expenditure, Budget).

According to sources, the internal task force on small savings had earlier suggested for a 50 basis point cut across maturities of all small savings instruments. However, a final view on this is yet to be taken, the sources said.

Moreover, the committee is understood to be mulling over a proposition of making these instruments taxable. This is because after being tax exempted, the return on these instruments comes to 11-12 per cent, way above the market rates. However, to make the government securities taxable, the Income Tax Act will have to be amended.

The government, in the meantime is understood to be thinking of cutting down the number of instruments as these are high cost borrowings and also because the government has a surplus in its accounts this year.

As for the special deposit scheme, which comes for redemption this year, there is a proposal to pay the small borrowers, while issuing a security to the large borrowers like the trusts and funds.

As per the recommendations of earlier expert committee on administered interest rates, under the chairmanship of Y V Reddy, the entire proceeds of small savings are being transferred to the state governments. Thereafter, interest rates on small savings have been aligned to market interest rates.

The small savings schemes include Provident Funds Scheme, Kisan Vikas Patra, Postal Monthly Income Schemes, RBI Relief Bonds, National Savings Certificate etc.

While the Postal Monthly Savings Scheme and Public Provident Funds offer eight per cent interest, the National Savings Certificate, launched in 1992, has a coupon of 7.50 per cent and the RBI taxable Relief Bonds offer 8 per cent.

The recommendations of the Reddy Committee primarily focused on the rationalisation of administered interest rates and reduction of number of such schemes so that these become modest source of financing government deficit.

The committee had recommended benchmarking of such instruments to real return based on inflation rate, bank deposit rates corresponding to different maturities, and average secondary market yield on government securities.