Eyeing big mop-up: Govt refrains from cutting small savings rates in Q2

By: |
July 2, 2020 12:45 AM

The NSSF was already budgetted to finance as much as 30.1% of the deficit in FY21, not far from the record 31.3% in the last fiscal.

Last week, the government had extended the date for deposit in small savings until July 31 to be eligible for tax benefit for FY20.Last week, the government had extended the date for deposit in small savings until July 31 to be eligible for tax benefit for FY20.

The resource-hungry government has kept interest rates on various small savings schemes for the September quarter unchanged, despite falling interest rates on bank deposits, as it aims to encourage investors to park more funds in such schemes.

The move will help the Centre borrow more from small savings funds and cut reliance on the markets to bridge its fiscal deficit, at a time when the pandemic has badly hit its revenue collections. The government had sharply cut the small savings rates (in the range of 70-140 basis points) for the June quarter, in sync with the fall in bond yields and interest rates on bank deposits. The small savings rates are revised quarterly.

While the Centre could always look at raising its reliance on the National Small Savings Fund (NSSF) window, in sync with the trend in recent years, to fund deficit, there was a fear that, given the current income loss, many people would tend to withdraw more from small savings fund, shrinking the net kitty.

The interest rates on Public Provident Fund (PPF), Kisan Vikas Patra (KVP) Scheme and the Sukanya Samriddhi Account Scheme have been retained at 7.1%, 6.9% and 7.6%, respectively, for the July-September period, according to a circular by India Post. Similarly, the interest rate on one-year, two-year, and three-year time deposits have also been maintained at 5.5%.

The NSSF was already budgetted to finance as much as 30.1% of the deficit in FY21, not far from the record 31.3% in the last fiscal. However, the government’s fiscal math went haywires due to the pandemic, leading it to scour for resources to keep up productive expenditure commitments.

Last week, the government had extended the date for deposit in small savings until July 31 to be eligible for tax benefit for FY20.

The interest rate on almost all small saving schemes have been generally declining since April 2012. Interests on the five-year term deposit, recurring deposit, senior citizens savings scheme have been kept at 6.7%, 5.8% and 7.4%, respectively.

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