InvestorQ : Why did the government of India first cut the small savings rates and then withdraw the decision so suddenly?
diksha shah made post

Why did the government of India first cut the small savings rates and then withdraw the decision so suddenly?

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shrinidhi Rajan answered.
7 months ago
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It was almost like a massive volte face done by the government at the centre. On 30 March, the government announced an across the board cut in small savings rate ranging from 60 basis points to 110 basis points. It included cuts in the rates of interest payable on PPF, NSC, KVP, Post Office deposits, Sukanya Samriddhi, Senior Citizens Savings Scheme or SCSS etc. Even schemes addressed for senior citizens and the girl child were not spared.

It was a rather brave decision coming just couple of days before the close of FY21 and in the midst of the elections season. However, the decision was withdrawn with equal alacrity. Clearly elections might have played a part but it could also be that the government was just testing waters to see how the reaction would be to such a decision.

The surprising part in this large scale cut in interest rates on small savings was that even sensitive schemes like the Senior Citizen Savings Scheme SCSS and Sukanya Samriddhi for the girl child were not spared. Rate cuts on PPF and other postal deposits are a lot more acceptable.

But the way the story is going, it does look like the rate cut could come sooner rather than later. There are two aspects of these small savings that the government is planning to address viz. the high interest rates and the liberal tax benefits at multiple levels. Budget 2021 withdrew tax benefits on CPF partially and this is could be a signal that the government is willing to bite the bullet on very difficult and sensitive issues.

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