Steep cuts on interest rates on small savings schemes
Steep cuts on interest rates on small savings schemes, announced last evening, were rolled back by the government today with Finance Minister Nirmala Sitharaman declaring that "orders issued by oversight" would be withdrawn. The cuts in schemes ranging from the National Savings Certificates or NSC and Public Provident Fund or PPF would have hurt millions of middle-class depositors."Interest rates of small savings schemes of the government of India shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021. Orders issued by oversight shall be withdrawn," Finance Minister Nirmala Sitharaman tweeted this morning.
Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021.
Orders issued by oversight shall be withdrawn. @FinMinIndia @PIB_India— Nirmala Sitharaman (@nsitharaman) April 1, 2021
The rollback was announced as Bengal and Assam voted in the second round of state elections. Last evening, on the last day of the financial year, the government had announced a huge cut in interest rates of up to 1.1 percent for the first quarter of 2021-22. The interest rate on PPF was reduced from 7.1 percent to 6.4 percent. NSC would be down to 5.9 percent from 6.8 percent. The new interest rate on PPF would have been the lowest since 1974. If implemented, this would have been the second cut in interest rates on small savings within a year. In the April-June quarter of 2020-21, the government had slashed rates of small savings schemes by 0.70-1.4 percent. The government, say sources, had sought the Election Commission's no-objection for the periodic review of interest rates and had got it before making the announcement in the middle of elections. The government had said a periodic review in every quarter was necessary, said sources in the election body. As part of the cuts, the interest rate for the five-year Senior Citizens Savings Scheme paid quarterly, was also to be reduced steeply by 0.9 percent to 6.5 percent. Rates on the girl child savings scheme Sukanya Samriddhi Yojana would fall to 6.9 percent from 7.6 percent. For the first time, the interest rate on savings deposits was reduced by 0.5 percent to 3.5 percent from the existing 4 percent annually. The steepest fall of 1.1 percent would have been applied on the one-year term deposit. The new rate would have been 4.4 percent as compared to 5.5 percent. A two-year fixed deposit would have earned 0.5 percent less at 5 percent and a three-year term deposit rate would have been cut by 0.4 percent. A five-year term deposit rate would have been lower by 0.9 percent at 5.8 percent. The annual interest rate on Kisan Vikas Patra (KVP) would have been reduced by 0.7 percent to 6.2 percent from 6.9 percent. Rates of small savings schemes are linked to government bond yields. Small savings have become key to financing the government deficit, which has widened because of the coronavirus pandemic, increasing the need for borrowings.