Millions of small savers and PPF account holders will earn less on their post office savings schemes, with the government deciding to reduce interest rates on them marginally by 0.10 per cent.
The interest rate of Public Provident Fund (PPF) has been lowered from 8.8 per cent to 8.7 per cent with effect from April 1, 2013, said a Finance Ministry statement.
However, the rates on savings deposit schemes and on fixed deposit of up to one year run by post offices has been kept unchanged at 4 per cent and 8.2 per cent, respectively.
Further, Monthly Income Schemes (MIS) of 5 year maturity will earn an interest of 8.4 per cent.
The National Savings Certificates (NSC) having maturity of five and 10 years will now attract 8.5 per cent and 8.8 per cent interest respectively, down 0.10 per cent each.
The interest rates would be applicable for the entire 2013-14 fiscal.
The rate for senior citizens savings scheme (SCSS) will now stand at 9.2 per cent, down from 9.3 per cent.
The revision in interest rates follows a decision taken by government last year to link the small savings returns with the market rate.
The new rates are required to be announced at the beginning of a financial year.
The decision is in line with the recommendations of Shyamala Gopinath Committee, which had suggested that returns should be in sync with market rates determined by the returns offered by other securities.
Deputy Chairman Montek Singh Ahluwalia today justified the lowering of rate of interest on small saving schemes saying the returns remain favourable to depositors in real term.
“In real terms, inflation is much lower than it was two years ago. So, in real term, the interest rate is more favourable,” Ahluwalia said on the sidelines of Skoch summit.
“I don’t believe that interest rate for savers through the post office system can be delinked completely from the interest rate system in the country,” he said.
Ahluwalia said: “If you want low (interest) rate environment, you cannot say, ‘I want higher interest rate for savers and low interest rate for borrowers’. They have probably moderated (interest rate) a little bit in line with the softening of interest rates.”
The Reserve Bank has recently cut short term borrowing and lending rate by 0.25 per cent to boost economic recovery.
India’s economic growth slowed further to 4.5 per cent in the October-December quarter of current fiscal, and the gross domestic product (GDP) in the first nine months (April-December) of 2012-13 is at 5 per cent.
Central Statistical Organisation in its advance estimates has projected that Indian economy will grow at a over decade low growth rate of 5 per cent in the current fiscal.
However, according to Ahluwalia, India can achieve over 6.5 per cent economic growth next fiscal.