The government’s decision, which comes amid increasing inflation and declining wages, is anticipated to give some respite to lower-income workers and older citizens, who will continue to receive greater interest income than fixed deposits in banks.
Following the withdrawal of a rate decrease announced in April, the government has chosen to maintain interest rates for small savings plans constant for the July-September quarter, the fifth in a row. The government’s decision, which comes amid increasing inflation and declining wages, is anticipated to give some respite to lower-income workers and older citizens, who will continue to receive greater interest income than fixed deposits in banks.
The most recent change to modest savings rates occurred for the period April-June 2020. The senior citizens’ plan will earn an annual interest rate of 7.4 per cent, while the PPF scheme will earn an annual interest rate of 7.1 per cent.
The National Savings Certificate will yield 6.8 per cent, Kisan Vikas Patra will yield 6.9 per cent, and 5-year time deposits will yield 6.7 per cent.
These fixed-income rates are only second to the 8.5 per cent interest rate given by the Employees’ Provident Fund Organisation for 2019-20 and projected for 2020-21. “The rate of interest on various small savings schemes for the second quarter of the fiscal year 2021-22, beginning on 1 July 2021, and ending on 30 September 2021, shall remain unchanged from the current rates applicable for the first quarter (1 April 2021, to 30 June 2021, for FY 2021-22),” the Department of Economic Affairs stated in an office memorandum.
Interest rates for modest savings plans are meant to be adjusted quarterly, by the movement in benchmark government bonds of comparable maturity. The 10-year G-Sec yield has decreased from 6.6 per cent to about 6 per cent in the previous 18 months, in line with the Reserve Bank of India’s significant cut in repo rates.
The choice to maintain minimal savings rates is made in the face of rising inflation. The government’s most recent retail inflation statistics showed the headline figure jumping to a six-month high of 6.30 per cent in May, up from 4.23 per cent in April. With this, retail inflation has surpassed the RBI’s inflation goal of 4+/-2 per cent.
Within 24 hours of announcing a 40-110 basis point drop in interest rates on different modest savings plans for the April-June quarter in April, just before of Assembly elections in West Bengal and Assam, the government withdrew the cut.
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