Scrap unviable savings: Panel

However, it has also suggested that public provident fund (PPF) and all the post office savings schemes should be continued with reduced interest rates for the current financial year.

The Committee is of the view that interest rates on most of the long-term small savings schemes should be reduced by 100 basis points. These include PPF, taxable government savings bonds (6 years tenure), post office monthly income schemes, post office recurring deposits and post office time deposits with tenure between three and five years.

It is also in favour of replacing the deposit scheme for retiring government employees with the Dada-Dadi scheme,which,it feels, should get a subsidy of 1 per cent. However, the Committee is of the view that the Dada Dadi scheme should be brought into the tax net in accordance with Section 80 L of the IT Act.

Only in the case of the open-ended post office savings account, the Committee has suggested sticking to the old rate of 3.5 per cent for the present financial year.

Laying down a detailed procedure for benchmarking interest rates on small savings, the Committee is of the view that returns on government securities should be used as the benchmark for interest rates on small saving schemes. However, the latter’s return can fluctuate by 0.5 per cent from the average benchmark.

It has also suggested that inter-year movements of small-saving rates should be allowed within 100 basis points (or 1 per cent) on either side.

If interest rates cross the cap, then they should be either increased or brought down to the earlier level. If the benchmark movement exceeds 200 basis points, government should appoint a committee to revise it.

However, the Committee is of the view that as the financial market gains in depth and as the inflation rate stabilises, the volatility in government securities would decline and in that case the caps would not be a constraint on the rates.