THIRUVANANTHAPURAM: The Ministry of Finance’s directive to Local Self Governments (LSGs) to deposit their own funds in treasuries has sparked debate. Critics allege that the circular issued on September 18 is a tactic by the government to ensure liquidity support in times of crisis. Controversy aside, the move could benefit LSGs, as treasury bills offer higher interest rates than banks.
According to the Ministry of Finance, local authorities have everything to gain since the interest rate offered by treasuries is 1 to 2% higher than bank rates, depending on the mandates. The circular aims to prevent public funds from idling in banks. The apprehensions raised by critics are unfounded since LSGs are now excluded from the ways and means restrictions, he said.
The circular from the finance department asks LSGs to place their funds in new accounts of the Special Treasury Savings Bank (STSB). The government has also said that further instructions on this will be issued only by the Ministry of Finance.
This has gained prominence since LSGs deposited their funds in banks based on an order from the Department of Local Government in May 2011. The finance department asked LSGs to comply with the directive to from April 1, 2022. The LSG’s own funds include the collection of property tax, business tax and rental income.
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