Interest Rate Cuts

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Government Retracts Interest Rate Cuts on Small Savings

Orders pertaining to the reduction on Interest rate cuts drawn back by Union finance ministry...

Thursday, 1st April 2021

Not more than 24 hours after making a decision on rate cut reductions on small savings, the order was pulled back by the Finance Ministry of the Union Government and this retraction came suddenly, like a bolt from the blue!

The decision entails that several small saving schemes such as National Saving Certificates (NSC), Public Provident Fund (PPF) will have their interest rates continue for at least one more quarter, starting April 1st

A day earlier, the Union Ministry had issued an order that effected interest rate cuts that ranged from 50 basis points to 90 basis points- one of the biggest reductions after the interest rate unchanged for the longest period of time.

In a tweet posted around, 7.55 am on this Thursday Finance Minister Nirmala Sitharaman stated this was an erroneous announcement and was done by “oversight”. She assured that rates would remain the same, thereby making things clear for the public who were hoping of making mini savings.

The Finance Minister of India wrote on her social media post, “Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, i.e. rates that prevailed as of March 2021. Orders issued by oversight shall be withdrawn.”

The retraction came without any sort of warning and although there was no convincing explanation behind the withdrawal that was given by the government of India, it seemed to be a consequence of outbursts from various quarters.

Strong reactions to the initial decision bombarded social media, TV, and newspaper and this seemed to have forced the Government of India to reverse its decision. Yet another theory behind this decision suggests that the election in West Bengal and four other states could also be one of the reasons for the reversal in the decision.

If implemented there would have been a cut of up to 1.1% in interest rates for the first quarter of 2021-22, making small savers take a massive hit after an earlier move to tax interest on employee PF contributions of over ? 2.5 lakh a year.

There are 12 instruments in the small savings scheme basket, which include the National Saving Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP), and Sukanya Samridihi Scheme.

The interest rates are reset by the government at the beginning of every quarter.

Although, in theory, these changes in interest rates are being done on the basis of government security yields of the corresponding maturity along with certain considerations on the scheme for senior citizens, as advised by the Shyamala Gopinath Committee, since 2016, in practice the resetting is done based on various other factors, most of which are politically driven.

The News Talkie Bureau



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