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Saturday, July 24, 2021

Small savings interest rates kept unchanged

The government’s move, coming amid rising inflation and falling incomes, is likely to provide some relief to lower income earners and senior citizens who will continue to earn higher interest income than fixed deposits in banks.

Written by Aanchal Magazine , Sandeep Singh | New Delhi |
Updated: July 1, 2021 7:09:04 am
The senior citizens' scheme will fetch an interest rate of 7.4% per annum, while the PPF scheme will provide an interest rate of 7.1%.

Having withdrawn a cut in rates soon after announcing the same in April, the government has decided to keep the interest rates for small savings schemes unchanged for the July-September quarter, the fifth in a row. The government’s move, coming amid rising inflation and falling incomes, is likely to provide some relief to lower income earners and senior citizens who will continue to earn higher interest income than fixed deposits in banks.

The last revision in small savings rates was for April-June 2020. Given Wednesday’s decision, the senior citizens’ scheme will fetch an interest rate of 7.4% per annum, while the PPF scheme will provide an interest rate of 7.1%. The National Savings Certificate will fetch 6.8%, Kisan Vikas Patra 6.9% and 5-year time deposits 6.7%.

These rates on fixed income instruments are second only to the 8.5% interest offered by the Employees’ Provident Fund Organisation for 2019-20 and proposed for 2020-21.

“The rate of interest on various small savings schemes for the second quarter of financial year 2021-22 starting from 1 July, 2021, and ending on 30 September, 2021, shall remain unchanged from the current rates applicable for the first quarter (1 April, 2021, to 30 June, 2021, for FY 2021-22),” an office memorandum by the Department of Economic Affairs stated.

Interest rates on small savings schemes are supposed to be reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity, making Wednesday’s measure out of line with this.

Over the last 18-months, the 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 small savings rates unchanged comes amidst creeping inflation. Latest retail inflation data released by the government showed the headline number rising to a six-month high of 6.30% in May from 4.23% in April. With this, retail inflation has breached the inflation target of 4+/-2 per cent set by the RBI.

In April, just ahead of Assembly elections in West Bengal and Assam, the government had withdrawn a sharp cut of 40-110 basis points in interest rates on various small savings schemes for the April-June quarter, within 24 hours of announcing the same.

The ‘Office Memorandum’ regarding the revision of rates issued by the Budget Division in the Department of Economic Affairs was uploaded on the Finance Ministry website on March 31 evening. The next morning, Finance Minister Nirmala Sitharaman tweeted that the “orders issued by oversight shall be withdrawn”.

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