The government will link the interest paid to millions of small savers in a $137-billion central deposit scheme to market rates that will be revised every quarter, Economic affairs secretary Shaktikanta Das said on Thursday (11 February).
"The decisions have been taken and executive order and notification would be issued in a day or two. Broadly the underlying philosophy of small savings rate changes is to make the rate more frequently market aligned, make it as closely market aligned as possible," he said.
Small savings rates are linked to government securities' and readjusted every year, he said, adding that now they will be a adjusted on quarterly basis.
Cutting the small savings rate could save the government an estimated $700 million a year. But the move is likely to irk small savers and could be unpopular politically, particularly in rural areas where few banks have branches.
Rates on two social security schemes will not be changed, Das said.
The new rates would be applicable from April 1, 2016, he added.
"First effect of these changes will take place from 1st of April. They will be reset from 1st April," he said.
Smalls saving schemes include Post Office Monthly Income Scheme (MIS), PPF, Post Office fixed Deposit Scheme, Senior Citizens Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.
"At the same time, taking into consideration the interest of small savers and some important social sector measures of the government, the rates under the girl child scheme, the senior citizen scheme...they will continue as it is. They will have quarterly adjustments but whatever spreads they have over the G-Sec rates will not be altered," he said.
Similarly all long term savings over 5 years will continue to have the spread, he said, adding that at the shorter end of the curve the effort has been such that the reduction in rates is passed on and given effect to the system.
(Reuters / PTI)