The government has decided not to change interest rates on small saving schemes such as National Saving Schemes (NSS), Public Provident Fund (PPF) and Kisan Vikas Patra (KVP) for the quarter beginning October 1.

In an office memorandum issued late Monday night, the Department of Economic Affairs said that the decision to keep the rates unchanged was “with the approval of Finance Minister”.

Poll factor

Earlier, there were indications that the rates would be lowered by at least by 10 basis points. It seems that the forthcoming elections in Maharashtra and Haryana dissuaded the Centre from cutting the rates.

On the recommendations of the Shyamala Gopinath panel, starting April 1, 2016, interest rates on 12 small savings schemes are reviewed at the end of every quarter and new rates announced for the next quarter. Many of these schemes offer income tax benefits, which make them popular among the salaried people.

Also read:Govt may prune interest on small savings schemes

 

Declining trend

In an effort to bring the rates in line with the market, they are aligned with the rates on government bonds of similar maturities. The yields on government bonds (G-Secs) is mostly in decline. For instance, it was 7.27 per cent on a 10-year bond in the beginning of April, which rose to 7.39 per cent in the beginning of May. But it came down to 6.98 per cent in June, to 6.88 per cent in July and to 6.42 per cent in August.

Again, in the beginning of September, it increased to 6.52 per cent. Based on the movement, the government lowered the interest rate by 10 basis points for the July-September quarter. However, despite the reduction in yield, the government preferred to keep the interest rate unchanged for the October-December quarter.

As of now, small saving schemes are giving better returns than fixed deposits of banks. For example, a five-year term deposit with State Bank of India will fetch 6.25 per cent interest while a five-year NSC gives 7.9 per cent interest.

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