INTEREST RATES issues

• News:

Quarterly reset of interest rates on small savings schemes is due on June 30.

Small savings schemes

• A set of saving instruments launched by the Government of India.

• Examples: Public Provident Fund (PPF), National Savings Certificates (NSCs), the Senior Citizens Savings Scheme (SCSS), and the Sukanya Samriddhi Scheme etc.

• Popular with fixed income investors- offer much higher
interest rates than bank fixed deposits.

Lowering of interest rates .

• Will help the government reduce costs- will hurt senior
citizens and the middle-class. • Common people already suffer from inflation.
• Retail inflation was 6.2% through 2020- 21.
 Inflation is expected to stay around 5.5%-6% through 2021-22.

• Rising inflation, declining savings rates and loss of income- disastrous.

• Fall in small savings rate- discourage small investors.
 Small savings- a key source of financing the government deficit.
 In 2021-22, borrowings through small savings- pegged at Rs 3.91 lakh crore.
Public Provident Fund (PPF).

• Introduced in 1968- to mobilize small saving in the form of investment, coupled with a return on it

• Interest earned on the

Public Provident Fund
is tax-free.

• Tenure: for 15 years and can be extended for 5 years.

• Subscriber can make one withdrawal during a FY after five years excluding the year of account opening.

• Amount of withdrawal- up to 50% of balance at the credit at the end of 4th preceding year/at the end of preceding year, whichever
is lower.