Small Savings Schemes — Govt may bite the bullet this time

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The Finance Ministry’s decision to roll back the cut in interest rates of small savings schemes may have given temporary relief to citizens but there are indications that the government will slash the rates for the July-September quarter.

Among the 12 small savings schemes, Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana, Monthly Savings Plans of Post Office, Savings Account are opened in post offices. Banks also offer PPF and Sukanya facilities.

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It is important to know here that from 2016, the interest rates have been fixed every three months based on the recommendations of the Shyamala Gopinath Committee. Technically this is the system, but the practical aspect seems to dominate the technical aspect at times and the Finance Ministry’s decision on April 1 indicates something similar.

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Assembly polls

The decision to reduce the interest rate on small savings schemes would have been politically damaging for the BJP-led government, especially in West Bengal. Perhaps this is the reason why this state is 15% in terms of gross amount raised through small savings schemes (according to 2017-18 data, for the subsequent years, state-wise data not available). West Bengal topped the list while Tamil Nadu, Kerala and Assam combined with this state account for about 24% of the total amount of money collected across the country.

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Clearly, the decision needed to be overturned politically and the central government did the same. It is another matter that it did not result in any political gains.

The Centre has to borrow Rs 12 lakh crore from the market. It will be tried that the rate of interest is low for this. By the way, the Reserve Bank of India has been trying continuously for some time to keep the rate of interest on government securities low. That is why he also wants the interest rate on small savings schemes to be kept low.

Meanwhile, commercial banks complain that since they are giving loans cheaper, it is their compulsion to keep the interest rates on deposits low. In such a situation, the trend of people investing in small savings schemes is bound to increase. This is not a good situation for the banks, as there will be limited resources to lend to them.

Cut in interest rates imminent

On the other hand, there has been a fall in the interest rates on government securities for some time. Since there are no elections around the corner, it is highly likely that small savings schemes may see a cut in interest rates. But the move will result in a lot of criticism for the government as people are enduring a tough time due to the Civid-19 pandemic.

If the interest rates are slashed from July 1, then you will get interest at old rate on the amount deposited till June 30. Since the new financial year has also started, there is more than a month left for you to save at a higher interest rate to save tax. In these pandemic times, many won’t have additional money left but for those who have, they must utilise this limited time to put some extra money in these schemes.

(The writer is a senior journalist. Views expressed are personal)