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 in a massive blow to middle-class depositors.’
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by the government today with Finance Minister Nirmala Sitharaman declaring that “orders issued by oversight” would be withdrawn.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 Orders issued by oversight shall be withdrawn,” Finance Minister Nirmala Sitharaman tweeted this morning.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 and fueled instant political reactions.
If implemented, this would have been the second slash on small savings within a year and one that would have reduced interest rates to a more than four-decade low. In the April-June quarter of 2020-21, the government had cut 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.
Last evening, on the last day of the financial year, the government had announced a cut of up to 1.1 per cent in interest rates for the first quarter of 2021-22, setting up a massive hit for small savers after an earlier move to tax interest on employee PF contributions of over ₹ 2.5 lakh a year.
The interest rate on PPF was reduced from 7.1 per cent to 6.4 per cent, which would bring it down to its lowest since 1974.
NSC would be down to 5.9 per cent from 6.8 per cent.
The cuts would have impacted schemes for the girl child and the elderly.
The interest rate for the five-year Senior Citizens Savings Scheme, paid quarterly, was to be reduced by 0.9 per cent. Rates on the girl child savings scheme Sukanya Samriddhi Yojana would have dropped to 6.9 per cent from 7.6 per cent. The interest rate on the Kisan Vikas Patra (KVP) would have been reduced by 0.7 per cent.
Rates of small savings schemes are linked to government bond yields.
According to experts, small savings have become key to financing the government deficit, which has widened because of the coronavirus pandemic, increasing the need for borrowings.