Govt withdraws cuts in small savings schemes interest rates

On March 31 late evening, a steep cut was announced for small savings schemes and that would have been effective from fetch April 1

Staff Writer   /   April 1, 2021

Moving quickly to contain public outrage ahead of key state polls, Union Finance Minister Nirmala Sitharaman on Thursday Morning announced that the move by her ministry on March 31 late evening to slash rates of small savings schemes was an “oversight” and the previous rates will continue for April-June quarter. 
“Interest rates of small savings schemes of GoI 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 Orders issued by oversight shall be withdrawn. @FinMinIndia @PIB_India,” Sitharaman said in her Twitter handle. 
The rate cut announcement and then the hurried recall is unique. 
On March 31 late evening, the Finance Ministry had announced the lowering of interest rates on various small saving schemes such as National Saving Certificates (NSC) and Public Provident Fund (PPF) between 40 basis points and 110 basis points. The pay-out on PPF has now come down to a multi-decade low of 6.4 per cent. This would have hit fixed income investors, especially those in senior citizens group. 
The new rates were said to come into effect from April 1 i.e. be valid till June 30. Contributions made on or after April 1 would have fetched a lower rate, while those made till March 31 would have got old rates. The small savings schemes basket comprises 12 instruments, including the National Saving Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and Sukanya Samriddhi Scheme. If the latest round of cuts held, interest rates on small savings schemes have been reduced by a full 110-250 basis points in financial year 2020-21.
As per the Finance Ministry announcement on March 31, with effect from April 1, 2021, Public Provident Fund (PPF) will fetch 6.4 per cent down from 7.1 per cent earlier, National Savings Certificate (NSC) will get you 5.9 per cent, down from 6.8 per cent earlier, Sukanya Samriddhi Yojana (SSY) will give you 6.9 per cent, down from 7.6 per cent earlier. Post office time deposit rates across tenures have been reduced and will earn between 4.4 per cent and 5.8 per cent compared to earlier range of 5.5 per cent to 6.7 per cent. Senior Citizen Savings Scheme will fetch 6.5 per cent, down from 7.4 per cent previously. Kisan Vikas Patra will fetch 6.2 per cent, down from 6.9 per cent earlier. Savings deposit rate will be 3.5 per cent, from 4 per cent earlier.
The government can revise the interest rate at the beginning of every quarter. Since 2016, interest-rate resetting has been done based on yields of government securities of the corresponding maturity, with some spread on the scheme for senior citizens, as advised by the Shyamala Gopinath Committee.
This was the second time the government had cut interest rates on small savings schemes in the past twelve months. In the April-June quarter of 2020-21, the government had slashed rates of small savings schemes by 70-140 basis points. 100 basis points/bps is equal to 1 per cent.

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