UPSC Syllabus: GS Paper III – Indian Economy
The Government has recently decided to cut interest rates on various small savings schemes sharply by 40-110 basis points. The revised rates will come into effect from April 1 and remain in effect till June 30.
The Small savings instruments are the major source of household savings in India. Broadly, the small savings schemes basket comprises 12 instruments and can be classified under three heads. These are:
- Postal deposits
- Savings certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patra (KVP)]; and
- Social security schemes [(public provident fund (PPF) and Senior Citizens ‘Savings Scheme (SCSS)].
All small savings collections are credited to this National Small Savings Fund (NSSF) in the Public Account of India. The interest rates are reset every quarter based on the G-Sec yields of the previous three months.
A certain amount of NSSF is invested in the Central and State Government securities. The fund is administered by Department of Economic Affairs, Ministry of Affairs.
Reasons for the cut in the interest rates:
Higher borrowings of the Government through the Small Savings schemes ( 2020-21: Rs 4.8 lakh crores; 2021-22: Rs 3.9 Lakh crores). Higher interest rates would make Government’s borrowings costly and hence the plan to reduce the interest rates.
Fall in the yield rates on the G-Secs. ( Yield on 10 year G-Sec reduced from 6.8% in April 2020 to 6.1% now)
Government’s borrowing cost reduces and hence lower interest burden.
Enable the Banks to reduce rate of interest on the Deposits
Lower avenues for the Investors to invest money either in Bank Deposits or Small Savings–> Increase consumption expenditure.