Folks investing in PPF or Sukanya Samriddhi scheme need not worry — the rate cuts have been rolled back
- The government has withdrawn its interest rate cut order, bringing relief to Indians who invest in small savings schemes.
- The initial order announced cuts as sharp as 1.1% points, with some of the schemes barely beating the prevailing inflation rate.
- Finance Minister Nirmala Sitharaman said that the initial order was ‘issued by oversight’.
The Indian government had declared late evening on March 31 that small savings schemes including savings deposits of up to 5-year duration, Public Provident Fund (PPF), Sukanya Samriddhi scheme, Senior Citizens Savings schemes, and more will yield much lower interest than they do now.
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However, the morning after, Finance Minister Nirmala Sitharaman rolled back the decision after much criticism on social media. The rate cuts announced 12 hours earlier was “issued by oversight,” she said in a tweet.
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Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter… https://t.co/CKQryM8yUN— Nirmala Sitharaman (@nsitharaman) 1617243845000
The old interest rates prevailing as on March 31, 2021 will continue to be applicable.
Source: Finance Ministry
|Small Savings Scheme||Interest rate will continue to be...|
|5-year recurring deposit||5.8%|
|Senior Citizens Savings schemes||7.4%|
|Sukanya Samriddhi scheme||7.6%|
|Public Provident Fund||7.1%|
|National Savings Certificate||6.8%|
|Monthly Income Account||6.6%|
|Kisan Vikas Patra||6.9%|
As former Finance Minister P Chidambaram pointed out, it is the practice for the government to issue new interest rates at the start of the financial year and therefore, the order may not have been ‘inadvertent’.
The interest rate cuts, if implemented, would have affected the middle income class and poorer sections. These schemes require minimum investment as low as ₹1,000, which makes it possible for very low paid workers, or senior citizens, to save for a rainy day.
This would have not gone down well with a majority of voters. And with four states and a union territory, namely — Tamil Nadu, West Bengal, Kerala, Assam and Puducherry — in election mode, the Bharatiya Janata Party-led National Democratic Alliance (NDA) may not want to anger the voters by eating into their retirement money or funds set aside for the girl child’s education.
The benefit of these cuts is that they would have brought down the cost of capital for investors, and even the government that is looking to borrow heavily to meet its COVID-19 related expenses and the planned stimulus for the economy.
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