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  3. Cut on PPF a right decision and part of routine procedure: FM

Cut on PPF a right decision and part of routine procedure: FM

21 Mar 2016 Evaluate

After the government slashed interest rates on small-savings schemes, including the Public Provident Fund (PPF) and Kisan Vikas Patra (KVP), in order to align these administered interest rates closer to the market rates, Finance Minister Arun Jaitley has justified the decision and said that the country has to move towards lower interest rates. He articulated that cut on PPF rates was a right decision by the government and part of routine procedure. It will help to link small savings schemes’ interest rates with the market, as happens the world over.

Jaitley further said that “There is an old formula which has been running since ages. It states that the government gives subsidies on interest rates, set by the market, on the government securities for small savings. The interest rate on government schemes is determined by the market. This is a market aligned interest rate in which a spread is given from the government budget.'

He added that in between the interest rates went high due to which the government debt also increased. Now, the interest rates have come down. The present economic condition in the country doesn't allow the lending rates of the banks to go down whereas the deposit rates go high.

Earlier, the government decided to cut the interest rates on various small savings schemes. As per the alignment, PPF rate has been cut to 8.1 per cent from 8.7 per cent, rate on the KVP has been cut to 7.8 per cent from 8.7 per cent, the five-year National Savings Certificates will earn interest at the rate of 8.1 per cent as against 8.5 per, five-year Monthly Income Account rate has been cut to7.8 per cent as opposed to 8.4 per cent now. The girl-child saving scheme, Sukanya Samriddhi Account, will have an interest rate of 8.6 per cent as against 9.2 per cent, while the senior citizen savings scheme of five years will earn 8.6 per cent compared with 9.3 per cent. The new rates will come into effect on April 1 and will be valid till June 30, after the decision taken last month to revise the interest rates on small savings every quarter.

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