Amidst the criticism faced by the central government triggered from its inability to arrest the declining value of rupee against the US dollar and the fuel prices surging to the record high, the Finance Ministry’s decision to hike the interest rates on small savings schemes after a gap of several years is looked upon as an attempt to woo the middle class with some relief and drawing away its sentiments from the failures of the incumbent government.
The new rates hike by up to 40 bps for the third quarter (October 1 to December 31) was announced after reviewing the previous rates on these schemes at the end of every quarter as per the recommendations of the Shyamala Gopinath Committee. The committee further suggested that the interest rates of different schemes should be 25 – 100 basis points higher than the yields of the government bonds of similar maturity.
After the recent announcement, the Public Provident Fund or PPF which will now fetch 8 per cent interest rate for the upcoming quarter, up from 7.6 per cent in the current quarter. At the same time, the Sukanya Samriddhi Account scheme will now fetch 8.5 per cent interest rate as compared to the previous 8.1 per cent rate. 7.3 per cent rate on Kisan Vikas Patra or KVP has been increased to 7.7 per cent and the scheme will now mature in 112 months than the 118 months previously. However, the post office savings deposit interest rate has been kept unchanged at 4 per cent annually.
Both the schemes like the 5-year National Savings Certificate or NSC and the 5-year Senior Citizen Savings Scheme have got new hiked interest rates of 8 per cent and 8.7 per cent respectively. Interest rates for both of the schemes are currently at 7.6 per cent and 8.3 per cent. The interest rate on post office Monthly Income Scheme or MIS has been hiked to 7.7 per cent from 7.3 per cent. Howbeit, in the last two bi-monthly monetary policies announced in June and August 2018, the Reserve Bank of India (RBI) too hiked the repo rate cumulatively by 50 basis points.
Maharashtra Finance Minister Sudhir Mungantiwar asserted, “Increase in the interest rates of the schemes is nothing but a regular exercise by the central government. Such interest rates are regulated by the Reserve Bank of India and the fuel price hike has nothing to do with this decision.”
When AV spoke to Vinayak Godse, a senior citizen, he said, “Increase in the interest rates of small saving schemes is nothing but a political announcement before the general election in 2019. There’s no guarantee that the government will go ahead with the same rate post the upcoming quarter and even only the accounts in which the Senior Citizen Scheme will mature in the next three months will get the benefits of it.”
The interest rates on the small savings, benchmarked to yield on government bonds, are revised on a quarterly basis. But the hopes of fixed income earners were dashed for several years — the rates on almost every small savings scheme kept on declining since April 1, 2012. After the increase in the interest rates in the economy, many analysts over the last many months expected a hike much before but the government’s decision at this very moment seemed to them as a smart way in which the government tried to fade away the criticism due to rising inflation and the most recent wild fuel price climb.
Congress spokesperson Dr. Raju Waghmare stated, “The recent move by the Finance Ministry is definitely a political move to get back the voter confidence but such temporary surface repainting will not help them. The recent economic reports specify a bad condition of the Indian economy, the banking sector has 14 lakhs NPAs — the government must make sure that it has enough funds to give such relief to the common man.”
As per reports, the petrol and diesel touching their all-time high prices are largely attributed to the recent rise in crude oil cost and the high excise duty levied on the transportation of fuel in the country, while the rupee fluctuations made the imports costlier. The Ministry very well understands the growing inconvenience and disappointment among the general public due to high oil prices and the citizens across the country are round-the-clock condemning Prime Minister Narendra Modi for its failure to bring ‘Achhe Din’. The upswing revision in the oil prices has also united the Opposition to highlight this as a key issue while making their headway towards the upcoming Lok Sabha and state polls. Even a few State governments like in West Bengal, Karnataka, Andhra Pradesh, and Rajasthan announced tax cuts on the prices and many other states are also thinking the same way if reports are to be believed.
Banking expert and the Vice President All India Bank Employees Association, Vishwas Utagi spoke to Afternoon Voice and explained, “I don’t think that the decision to increase the interest rates on the small savings schemes is taken as an aftermath of the surging oil prices. There was a time when the interest rate on the PPF used to be at 9 per cent. When a government encourages investment, it means that the internal borrowing of the government has increased. When a government takes such call to increase interest rates, they ask the banks to cut down their rates of interest.”
He went on to say, “On the other hand, the cess levied on the oil prices is a big income for the government but a burden for the common man. Although we must question which all public welfare schemes are getting benefitted by this heavy levied cess on the fuel prices!”
By Moumita Mukherjee & Suraj Chandran