THIRUVANANTHAPURAM: The Finance Department’s directive to local self-governments (LSG) to deposit their own funds in treasuries has sparked off a debate. Critics allege that the circular issued on September 18 is a tactic of the government to ensure liquidity support in the time of a crisis. Controversy aside, the move may benefit LSGs as the treasuries offer higher interest rates than banks.
According to the Finance Department, local self-governments stand to gain as the interest rate offered by treasuries is 1 to 2% higher than bank rates, across different tenures. The circular aims to avoid public funds idling in banks. The apprehensions raised by critics are unfounded since LSGs are now excluded from ways and means restrictions, it has clarified.
The finance department’s circular asks LSGs to park their funds in new Special Treasury Savings Bank (STSB) accounts. The government has also stated that further instructions on the matter will be issued by the Finance Department only.
This gains significance since LSGs parked their funds in banks based on an order by the Local Self-Government Department in May 2011. The finance department has asked LSGs to comply with the directive from April 1, 2022. The own fund of LSGs comprises collections from property tax, professional tax and rent revenue.