Small savings interest rates remain unchanged
Having pulled out a rate cut soon after announcing the same thing in april, the government decided to keep interest rates on small savings unchanged for the july-september quarter, the fifth in a row. The government’s move, coming against a backdrop of rising inflation and falling incomes, is expected to provide some relief to low-income and elderly people who will continue to earn higher interest income than deposits at term in banks.
The last rate revision for small savings dates from April-June 2020. In view of Wednesday’s decision, the senior citizens’ scheme will benefit from an interest rate of 7.4% per year, while the PPF scheme will offer an interest rate of 7.1%. The National Savings Certificate will earn 6.8%, Kisan Vikas Patra 6.9% and 5-year term deposits 6.7%.
These rates on fixed income instruments are only higher than the 8.5% interest rates offered by the Employee Provident Fund Organization for 2019-2020 and proposed for 2020-2021.
“The interest rate for the various small savings plans for the second quarter of fiscal year 2021-2022 beginning July 1, 2021 and ending September 30, 2021, will remain unchanged from the current rates applicable for the first quarter ( April 1, 2021, to June 30, 2021, for fiscal year 2021-22), ”said a memorandum from the Ministry of Economic Affairs.
Interest rates on small savings plans are supposed to reset on a quarterly basis, in line with changes in benchmark government bonds of similar maturity, making Wednesday’s measure non-compliant.
Over the past 18 months, 10-year G-Sec yields have fallen from 6.6% to around 6%, in line with the sharp cut in repo rates by the Reserve Bank of India.
The decision to keep the small savings rates unchanged comes against a backdrop of creeping inflation. The latest retail price inflation data released by the government showed the headline figure topped a six-month high of 6.30% in May, from 4.23% in April. With this, retail price inflation exceeded the inflation target of 4 +/- 2 percent set by the RBI.
In April, just before the West Bengal and Assam assembly elections, the government withdrew a sharp 40 to 110 basis point cut in interest rates on various small savings plans for the April quarter. -June, within 24 hours of announcing the same.
The ‘Office Memorandum’ concerning the rate revision published by the Budget Division of the Directorate of Economic Affairs was posted on the website of the Ministry of Finance on the evening of March 31. The next morning, Finance Minister Nirmala Sitharaman tweeted that “orders issued by surveillance will be withdrawn”.