The new interest rate on PPF would have been the lowest since 1974.
- The cuts in schemes would have hurt millions
- The rollback was announced as Bengal and Assam voted
- The government, say sources, had sought poll panel's no-objection
Steep cuts on interest rates on small savings schemes announced last evening were rolled back by the government today with Finance Minister Nirmala Sitharaman undoing what she called "orders issued by oversight". The cuts of up to 1.1 per cent on schemes ranging from the National Savings Certificates or NSC and Public Provident Fund or PPF would have hurt millions of middle class depositors at a time many have lost jobs or faced pay-cuts during the pandemic.
"Interest rates of small savings schemes of the government of India 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 Orders issued by oversight shall be withdrawn," Nirmala Sitharaman tweeted less than 12 hours after her ministry published the rate cuts.
The government announced the unprecedented u-turn just as voting began in Bengal and Assam for state polls.
The rates will remain unchanged till June-end, a government notification said, implying that the move may well have been deferred till after the elections.
If implemented, this would have been the second slash on small savings within a year, one that would have reduced interest rates to a more than four-decade low. In the April-June quarter of 2020-21, the government had cut rates of small savings schemes by 0.70-1.4 per cent.
The government, say sources, had sought the Election Commission's no-objection for the periodic review of interest rates and had got it before making the announcement in the middle of elections.
Some of the cut rates were lower than current inflation rate, which meant depositers would effectively lose out.
According to the order last evening, on the last day of the financial year, the interest rate on PPF was to be reduced from 7.1 per cent to 6.4 per cent, which would bring it down to its lowest since 1974. NSC would have been down to 5.9 per cent from 6.8 per cent.
The cuts would have impacted schemes for the girl child and the elderly.
Rates of small savings schemes are linked to government bond yields.
According to experts, small savings have become key to financing the government deficit, which has widened because of the coronavirus pandemic, increasing the need for borrowings.