01 Apr 2021: Within hours, Modi government rolls back small savings rate cut
Less than 12 hours after announcing a steep reduction in small savings interest rates, the government has scrapped the order, saying it was issued by oversight.
The earlier order was to take effect from today and was slated to cover schemes like Public Provident Fund (PPF), Senior Citizen Savings, Sukanya Samriddhi Yojana, and Kisan Vikas Patra.
That decision would have hurt thousands of middle-class depositors.
Order: Government had issued order on last day of financial year
On the last day of the financial year, the government said that the interest rate on savings deposits has been slashed to 3.5% from 4% for 2021-22's first quarter.
Had it been implemented, this would have been the second time that interest rates were cut within a year.
During the April-June quarter of 2020-21, the government had reduced interest rates by 0.70-1.4%.
Details: PPF depositors, senior citizens would have suffered
According to Wednesday's order, the PPF was set to fetch an interest rate of 6.4%, down from 7.1%.
The National Savings Certificates (NSCs) would have yielded a 5.9% interest rate, as opposed to 6.8% earlier. The interest rate of the Sukanya Samriddhi Yojana was to fall from 7.6% to 6.9%.
Senior Citizens Savings Scheme (SCSS) saw its rate cut from 7.4% to 6.5%.
Details: The maturity time of Kisan Vikas Patra was also increased
Moreover, the Kisan Vikas Patra which has a tenure of 124 months was to mature in 138 months, that too with a reduced interest rate of 6.2% from 6.9%.
The one-year time deposit rate witnessed a reduction of 110 basis points — from 5.5% to 4.4%. Likewise, the interest rates on two, three, and five year time deposits were slashed by 40-90 basis points.
Impact: The cut in interest rates would have helped corporates, government
A lower interest rate helps corporate players, allowing them to borrow and spend more, eventually leading to the revival of the economy.
Further, lower interest rates help the government. In 2020-21, the government had plans to borrow Rs. 12.8 trillion. In 2021-22, it plans to borrow around Rs. 12.06 trillion.
However, a cut in interest rates is seen as catastrophic for middle-class depositors.
Tweet: As new rates sparked anger and concern, government withdrew it
After Wednesday's order created a flutter, the government withdrew it.
"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 this morning.
A person privy to the unusual development hinted at political compulsion (read Assembly elections) driving this latest order.
Fact: 'No decision could be taken without proper approvals'
"The bureaucracy acts on the basis of well-laid procedures and no decisions could be taken without proper approvals. The withdrawal appears to be a political compulsion," the person told HT.
Fact: Sitharaman assured that 'orders issued by oversight' will be withdrawn
Reaction: Nothing 'inadvertent' about March 31's order, tweeted Chidambaram
Slamming the Bharatiya Janata Party (BJP) regime, veteran Congress leader and former Finance Minister P Chidambaram tweeted that announcing interest rates on savings instruments is a regular exercise. "There is nothing "inadvertent" about its release on 31st March," he wrote.
"The BJP government had decided to launch another assault on the middle class by slashing the interest rates and profiting itself," his tweet read.
Fact: Government is hitting savers below the belt, claimed ex-FM