Smelling the heavy political cost of its decision to slash the interest rates on small savings including PPF during ongoing assembly elections in five states where BJP’s political stakes are very high the union finance ministry took the swift U turn and Ms. Nirmala Sitaraman the union finance minister tweeted late night that the decision to slash the interest rates on small savings has been put on hold . The laughable argument given by the finance minister is that it was due to an oversight. If the ministry is run by this way and such oversights only God can save the nation.
According to earlier news the government cut interest rates on various small savings schemes sharply by 40 to 110 basis points.It was to ne implemented from immediate effect i.e. April 1 and was to be remain in effect till June 30 this year. It may be noted that interest on the small savings is the major source of income of aged middle class persons retired officials and many such people. Interest given on Public Provident fund is also the major source of income of this class of people who invest their hard earned money in these schemes so that their last days of life are passed peacefully without being a burden on their sons and daughters. Even interest rates on Kisan Vikas Patra were slashed by .7 percent.
Small saving rates are linked to yields on benchmark government bonds which have fallen over the last one year as the Reserve Bank of India cut rates to support the economy. The reduction in small savings rates comes amidst inflation inching up in recent months. One can understand how cruel this decision would have been on one hand inflation is inching up means cost of necessary items are increasing on the other hand government decides to slash the interest rates that would have been doubly hitting a major section of our populace. Latest retail inflation data released by the government showed the headline number rising to a three months high of 5.03 percent in February. Thus some of the small savings products may not earn much in terms of real interest rates which a saver receives after adjusting for inflation.
Small savings have always been a key source of financing government deficit specially after Covid-19 led to multi folding the government deficit that necessitated higher needs for borrowing. In 202-21 revised estimates the government estimated to raise 4.8 lakh crore through small savings against he budget estimates of 2.4 lakh crore. Keeping in mind the economic importance of small savings for financing government deficit and its utility for common specially aged saver the decision to slash the interest rate was not only bad economic management but a cruel joke with savers specially aged persons.
Interest rates on small savings schemes are reviewed every quarter but they remained unchanged for the whole of FY21 after major cuts in April 2020 for last June’s quarter. According to experts the SCSS and Sukanya Samriddhi are still attractive compared to bank fixed deposits.PPF also retains strong advantage due to tax exemption facility, that has not been cut. Savers should not use this as a reason to get into risk debt funds or even equity they should also stay away from low rates corporate FDs.
All is well that ends well. The government has withdrawn its foolish decision even though it terms it as an oversight. Life however, remains tough and miserable for common Indian due to heavy cost of all necessary items specially edible oil, pulses petroleum products and travelling cost. India of today is no more the India that was before so called “Achchhey Din”