Recall of Interest Rate Cut on Small Savings- Centre Claims it was an Oversight
A day after government announced its decision to cut down the interest rates on small savings, it recalled the decision and maintained the interest rate of the previous quarter. The recall signifies the fourth consecutive quarter with no change on small savings interest rates.
On Wednesday, 31st March 2021, the Government of India had announced a slash on small savings like the National Savings Certificate (NSC) and Public Provident Fund. This announcement forewarned a cut on interest rates of up to 1.1 percentage points or 110 base points. The next day, through a Twitter account, the foreign ministry recalled its decision to go forward with the cut, sighting it as an oversight.
The cut, if effective, would have impacted various savings account. There would have been an instant decrease in the interest rate of five-year recurring deposits from 5.8 percent to 5.3 percent. Similarly, the Senior Citizens Savings Scheme interest rate would have gone down from 7.4 percent to 6.5 percent. The savings deposit would have suffered a decline in interest rate from 4 percent to 3.5 percent, the interest on one-year to three-year deposit would have decreased from 5.5 percent to 4.4 percent, while the interest rate of five-year time deposit would have suffered a reduction from 6.7 percent to 5.8 percent. The interest rate on Sukanya Samriddhi Account Scheme would also have witnessed a decline from 7.6 percent to 6.9 percent, and the interest rate on Kisan Vikas Patra would have reduced from 6.9 percent to 6.2 percent.
This would have put the pandemic suffering middle-class and senior citizen population in an added economic predicament. The rates were earlier cut down with a bigger slash in the first quarter of 2020-2021 with a reduction of 140 basis points.
The reduction would have been the first in a year. Mrs Nirmala Sitharaman, the Finance Minister of India, withdrew the decision to slash the interest rates on small savings scheme sighting it as an “oversight” on Thursday, 1st April 2021, giving much respite to the people struggling from pandemic-hit Indian economy. She shared this update on her Twitter account and clarified that the orders would be withdrawn.
“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. Orders issued by oversight shall be withdrawn,” finance minister Nirmala Sitharaman said in a Twitter update.
After the announcement of withdrawal of interest rate cut, the Indian public heaved a sigh of relief for now the rates on all the small savings scheme would continue on the earlier rates of January-March quarter.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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