The Indian government has announced the withdrawal of the sharp cuts in small saving schemes less than 24 hours after passing the order.
In the order issued on 31st March 2021 (Wednesday evening), the Union Ministry of Finance had announced sharp cuts in the interest rates of small savings schemes from the quarter beginning 1 April.
This was an unexpected announcement which announced the cut for some schemes as steep as 90 basis points. The move elicited sharp negative reactions and could have led to the ruling BJP facing voters’ ire in the ongoing assembly elections.
Finance Minister Nirmala Sitharaman announcing a withdrawal of the order mentioned that it was issued by an “oversight”. This appears to have been a swift damage control attempt from the government in sight of the assembly elections.
Sitharaman tweeted, “Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021. Orders issued by oversight shall be withdrawn.”
The BJP is caught in a fierce electoral battle in two states — Assam and West Bengal while trying desperately to make new political impact in the two southern states of Kerala and Tamil Nadu, besides the Union Territory of Puducherry.
Assam will vote in three phases till 6 April and West Bengal in eight phases29 April. Tamil Nadu, Kerala and Puducherry will poll in a single phase on 6 April.
The first phase of elections in Assam and Bengal took place on 27 March, while the second phase is under way Thursday.
Though the revision in small savings was due before the beginning of the quarter, it would have adversely impacted the earnings on savings of the middle class and senior citizens.
The small savings rates are typically revised every quarter in line with the interest rates prevalent in the economy. The Reserve Bank of India has been cutting policy rates gradually over the last months, the cut in small savings rates was inevitable.
However, the government decided to withdraw the Wednesday order following an uproar.
According to the 31 March order, the interest rate on the senior citizen saving scheme — was cut by 90 basis points to 6.5 per cent from 7.4 per cent. The Public Provident Fund — was reduced by 70 basis points to 6.4 per cent from 7.1 per cent. The National Savings Certificate, Kisan Vikas Patras and the Sukanya Samriddhi scheme also saw sharp cuts.