U-turn: Govt reverses the decision to cut small saving schemes interest rate

Finance minister Nirmala Sitharaman Thursday early morning announced the withdrawal of its notification announcing a major cut in a dozen small saving schemes where the interest rates are being set by the government. The ministry of finance had Wednesday announced a major cut in all the major saving schemes for the first quarter of the next fiscal, writes ETV Bharat's Deputy News Editor Krishnanand Tripathi.

New Delhi: In a major embarrassment for the government, the finance minister Nirmala Sitharaman Thursday early morning announced the withdrawal of its notification announcing a major cut in a dozen small saving schemes where the interest rates are being set by the government.

“Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021,” finance minister Nirmala Sitharaman tweeted early on Thursday morning.

In the tweet, which was also tagged to the government’s official publicity handle, Press Information Bureau, Sitharaman said the orders issued by oversight shall be withdrawn.

Perhaps, this is for the first time when such a major decision has been reversed within 12 hours after it was made public on Wednesday evening.

The early morning tweet also suggested the urgency to communicate the news about reversal of the decision as finance minister Nirmala Sitharaman took the matters in her hand and announced the decision from her personal twitter handle rather than waiting for the ministry’s official publicity team.

Decision withdrawn in less than 12 hours

In a major decision that would have affected the majority of India’s low and middle income families, the ministry of finance had Wednesday announced a major cut in all the major saving schemes for the first quarter of the next fiscal.

While the interest rate of PPF deposits was to be reduced from 7.1% to 6.4%, a reduction of 70 basis points or half a percent, the interest rate on Senior Citizens Savings Scheme (SCSS) has been cut from 7.4% to 6.5%, a reduction of 90 basis points, as per a decision that was to take effect from today.

The Senior Savings Scheme deposits (SCSS) are an important investment avenue for the retired people and senior citizens who invest their money in banks and post offices to get an assured interest income.

Read: Drastic cut in PPF, SCSS, NSC, Sukanya Samriddhi, saving deposit interest rates

In the notification, which has been withdrawn, the interest rate on National Savings Certificates (NSCs) had been reduced from 6.8% to 5.9%, a reduction of 90 basis points.

The interest rate of Sukanya Samriddhi Scheme (SSS), which was the highest paying small saving scheme, was to be cut by 70 basis points, from 7.6% to 6.9%.

Similarly, the Kisan Vikas Patra (KVP), whose maturity period was extended from 124 months to 138 months, effectively bringing down the interest rate from 6.9% to 6.2%, will now have the same maturity period as was in the last quarter of FY 2020-21.

The interest rate on monthly income accounts, which was to be cut from 6.6% to 5.7%, a cut of 90 basis points, will now have the same interest rate of 6.6% for the current quarter starting today.

Interest rate on five-year recurring deposits will remain 5.8% as was the case with the previous quarter.

Interest rates on saving deposits, FDs

After the withdrawal of the notification issued yesterday, the interest rate on saving deposits will remain 4%.

Similarly, the interest rate on one-year term deposit (FD) will remain the level of 5.5%.

Among all the interest rate cuts announced yesterday, this FD had seen the highest cut of 1.1%.

In case of two-year term deposit, the interest rate will remain 5.5%, for three-year term deposit it will remain 5.5% and for five-year term deposit, the rate of interest rate will continue to be 6.7% as the decision to cut it by 90 basis points has been reversed.

The government notifies the interest rates for these saving schemes under the Government Savings Promotion General Rules, 2018.

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