Mumbai/New Delhi: Finance minister Arun Jaitley on Sunday defended the move to slash the rates of the Public Provident Fund, Kisan Vikas Patra, National Savings Certificate and the Sukania Samriddhi for the girl child on grounds that the country has to move towards lower interest rates to make the economy more efficient rather than sluggish.
Facing an outrage from the public, Mr Jaitley speaking to reporters in New Delhi, said interest rates on small saving schemes were “formula based” and the government uses its resources to give subsidy on these schemes, above the rates determined by the market. “Interest rates had risen a lot earlier but now they have come down.The PPF interest rate at 8.1 per cent remains “reasonably lucrative and since it’s tax free, the actual earning is close to 11-12 per cent,” Mr Jaitley said.
The State Bank of India, in its EC-wrap, suggested the interest rates on PPF should have been tweaked only as per age structure, while that for Sukanya Samriddhi should have been left untouched, given the social objective for protecting girl child.
PPF rates it said, may be linked to long-term bank deposit rates for age group till 45, and offering a higher than market rate for people over 45. It also said that government should ideally remove the 15-year lock-in period for PPF and give the investors the option to withdraw their money within a stipulated time, but not much different from three months.
Dr A. Didar Singh, secretary general, Ficci, said, “Banks have been pointing out the interest rates on small savings instruments as one of the factors that have deterred them from reducing their interest rates. With the government now having made this move, banks must take an immediate cue and support the incipient economic recovery.”
