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by the government today with Finance Minister Nirmala Sitharaman declaring that “orders issued by oversight” would be withdrawn.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 Orders issued by oversight shall be withdrawn,” Finance Minister Nirmala Sitharaman tweeted this morning.
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 per cent for the first quarter of 2021-22. The interest rate on PPF was reduced from 7.1 per cent to 6.4 per cent. NSC would be down to 5.9 per cent from 6.8 per cent.
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 per cent.
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 per cent to 6.5 per cent. Rates on the girl child savings scheme Sukanya Samriddhi Yojana would fall to 6.9 per cent from 7.6 per cent.
For the first time, the interest rate on savings deposits was reduced by 0.5 per cent to 3.5 per cent from the existing 4 per cent annually. The steepest fall of 1.1 per cent would have been applied on the one-year term deposit. The new rate would have been 4.4 per cent as compared to 5.5 per cent.
A two-year fixed deposit would have earned 0.5 per cent less at 5 per cent and a three-year term deposit rate would have been cut by 0.4 per cent. A five- year term deposit rate would have been lower by 0.9 per cent at 5.8 per cent.
The annual interest rate on Kisan Vikas Patra (KVP) would have been reduced by 0.7 per cent to 6.2 per cent from 6.9 per cent.
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.