The returns on small savings schemes are likely to see a minor cut effective from April 1, as the Finance Ministry is set to align them with market rates and revise them on a quarterly basis.
Economic Affairs Secretary Shaktikanta Das on Thursday said: “The decision has been taken and the executive order and notification will be issued in a day or two. The small savings rates will be more market aligned.” However, the interest rate on the Sukanya Samriddhi Yojana and senior citizen deposits will remain unchanged, he said.
At present, the returns on small savings schemes are benchmarked to the yield on government securities. The schemes, which include the Public Provident Fund, National Savings Certificate and Post Office deposits, offer interest rates ranging from 9.3 per cent to 8.6 per cent as against bank deposits that offer returns between 5 per cent and 8 per cent depending on the tenor.
All long-term savings of over five years will continue to have the same spread that they currently have, Das said and added that at the shorter end of the curve the effort has been such that the reduction in rates is passed on and given effect to the system.
“Whatever policy rates are being announced by the Reserve Bank, the small savings rate will also pass it on. But at the long end of the curve the spread will be protected,” he said, noting that this will encourage long-term investments.
Finance Minister Arun Jaitley had in September last year announced that the government will review the rates on these schemes after the Reserve Bank of India and banks had sought the returns to be aligned with the market rate for the effective transmission of monetary policy.
Market volatility and rupee
Pointing out that the world is in turmoil and “uncertainty and volatility appear to be the new norm”, the Economic Affairs Secretary said India is set to grow at a robust rate.
While agriculture continues to be an area of concern due to a drought in three of the last four years, he said the government is keeping a close watch and will address all issues.
In an attempt to soothe investors, Das said the decline in domestic stock markets and rupee depreciation are a result of international events and India continues to be better off than many other countries. “World over markets are going down as corporates are facing stress and re-adjusting their business models. India is not an exception and we are certainly better off,” he said.
Since January 1, the Nifty and the BSE witnessed about 10 per cent negative growth compared to a 21 per cent decline in Japan, 10.35 per cent loss in the S&P 500 of the US, 14 per cent loss in Hong Kong and 12 per cent decline in Singapore.
Similarly, he said that the rupee depreciated 6.5 per cent against the US dollar since April last year, which is less than other global currencies. In contrast, the Euro declined 14 per cent against the dollar, while the yen fell 10 per cent during the period.
Monetary Policy panel
Das said the Finance Ministry is working in close cooperation with the Reserve Bank on “every issue”, including setting up of a Monetary Policy Committee. “We always hold frequent discussions between the Finance Ministry and Reserve Bank of India and both RBI and Finance Ministry are on the same page,” he said.