Govt Withdraw New Small Savings Rates – Free PDF Download

What happened?

• The Government on Wednesday cut interest rates on various small savings schemes sharply by 40-110 basis points.
• The revised rates will come into effect from April 1 and remain in effect till June 30.

What are Small Savings Schemes (SSS)?

• An important component of India’s financial savings scenario is the large-scale participation of general public through various small saving schemes initiated by the central government.
• In this context, the Small Saving Schemes (SSSs) are important source of household savings in India.
• Different small saving schemes have mobilized money from households and channelized it to government so that the centre and states can finance a part of their expenditure.

• The Small Savings Schemes can be grouped under three:
• Post office Deposits: Post Office Savings Account, Post Office Time Deposits (1,2,3 and 5 years), Post Office Recurring Deposits, Post Office Monthly Account,
• Savings Certificates:National Savings Certificate and Kisan Vikas Patra
• Social Security Schemes: Public Provident Fund, Senior Citizens Savings Scheme, and Sukanya Samriddhi Account.
• The Central Government operates Small Savings Schemes (SSS) through the nationwide network of about- 5 lakh post offices, more than 8,000 branches of the Public-Sector Banks, select private sector banks and more than 5 lakh small savings agents.

Why this steep cut?

• These rate cuts were on the cards for quite some time
• The rates on these schemes are aligned with those on government securities (G-Secs).
• So, as G-Sec rates move up or down, the rates on small savings schemes are also supposed to move every quarter.
• Over the past one-and-a-half years, the 10-year G-Sec yield is down almost 2% points.
• RBI also slashed repo rate.
• In contrast, on most small savings schemes, the rates had hardly changed.

Govt’s borrowing

• The government plans to borrow ₹12.05 lakh crore in 2021-22, on the back of a record gross borrowing of ₹13.71 lakh crore in 2020-21.
• High small savings rates have been cited by the central bank as a major impediment in ensuring policy rate cuts get transmitted into the banking system.

Impact

• Right now there are Rs 12 lakh crore in small savings schemes.
• Fixed-income investors, would have earn a lower rate of interest.
• It include senior citizens as well as the girl child, who are major beneficiaries of the schemes.
• Senior citizens are already among the worst hit by falling rates as bank fixed deposit rates have crashed, leaving them with lower interest income.

Q) Which among the following is the constituent of the net wealth of the private sector?

1. Money issued by the central bank
2. Government bonds
3. Physical assets of households and firms
4. Capital stock of private sector

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