Planning Commission Deputy Chairman Montek Singh Ahluwalia today justified the lowering of rate of interest on small saving schemes saying the returns remain favourable to depositors in real term.

“In real terms, inflation is much lower than it was two years ago. So, in real term, the interest rate is more favourable,” Ahluwalia said on the sidelines of Skoch summit.

“I don’t believe that interest rate for savers through the post office system can be delinked completely from the interest rate system in the country,” he said.

The government has decided to cut rate of interest on post office small savings by 0.1 per cent for 2013—14. The interest rate of Public Provident Fund (PPF) has been lowered from 8.8 per cent to 8.7 per cent with effect from April 1.

The National Savings Certificates (NSC) having maturity of five and 10 years will now attract 8.5 per cent and 8.8 per cent interest respectively, down 0.10 per cent each.

The rate for senior citizens savings scheme (SCSS) will now be 9.2 per cent, down from 9.3 per cent.

The decision is in line with the recommendations of Shyamala Gopinath Committee, which had suggested that returns should be in sync with market rates, determined by those offered by other securities.

Ahluwalia said: “If you want low (interest) rate environment, you cannot say, ‘I want higher interest rate for savers and low interest rate for borrowers’ They have probably moderated (interest rate) a little bit in line with the softening of interest rates.”

The Reserve Bank has recently cut short term borrowing and lending rate by 0.25 per cent to boost economic recovery.

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