SLASHING SMALL SAVINGS RATE - A PINCH WHERE IT HURTS THE MOST!
By Ruma Dubey
While we were busy enjoying the T20 matches and the lazy weekend, the Modi Govt was pretty busy.
Friday evening, after we all had shut down for the weekend, the Govt slashed interest rate on all our small savings, including PPF and Kisan Vikas Patra (KVP). These rates will be reviewed quarterly and not annually.
Take a look at the new rates; effective 1st April 2016, valid till 30th June 2016.
- PPF rate cut from 8.7% to 8.1%
- Rate on KVP slashed from 8.7% to 7.8%.
- Post Office savings retained at 4%
- 5-year National Savings Certificates will earn interest at the rate of 8.1% v/s 8.5%
- 5-year Monthly Income Account will fetch 7.8% v/s 8.4%.
- Sukanya Samriddhi Account rate cut from 9.2% to 8.6%.
- Senior citizen savings scheme of five years will earn 8.6% v/s 9.3%.
- Post office term deposits are being cut from 8.4% to 7.1% for one-year time deposit, 7.2% for two-year time deposits and 7.4% for three-year time deposits and that for 5-year reduced from 8.5% to 7.9%.
- 5-year recurring deposits rate slashed to 7.4% from 8.4%.
The Govt and financial analysts, logically, have agreed that this HAD TO BE DONE! The rates were cut to align the bank fixed deposit rates with the small savings rate. Why? Because the banks are tight on funds and despite RBI cutting rates, they have held on to their rates, not passing on any major benefit to the customer. EMI rates have not changed much but banks were very prompt to slash FD rates. That “benefit” they were very quick to pass on. The cut in small savings rate was needed to correct this imbalance; to do exactly what the banks wanted.
This was required, many say. But look at this number – small savings contribute somewhere around Rs.6.4 trillion and this is just 7% of the amount garnered by banks on their FDs. So how are they saying that they are losing money to small savings? Seriously, how are these small savings any competition to the bank FDs?
Many explain that though they do not garner as much as FDs, the higher interest rate creates a “perception” of FDs being unattractive and money moving to small savings. So these rates have been slashed to correct a “perception”? In that way, the BJP Govt needs to do so much to correct so many other perceptions – there it is so silent; so why here where it hurts the pockets of the middle class?
The financial circles might be happy with this move but amongst the masses, the rage has only risen. Interest on these small savings is the only source of income for many. With cost of basic necessities of life itself on the surge, even on 8% and above interest rate, survival was a task. Now with these sharp slashes across the board, what happens to so many living on interest income?
This rate cut, especially in the current atmosphere of Vijay Mallya, Essar and many more such corporate honchos milking the banking system dry, comes as a tight slap once again on the face of the common man. The banks and the corporates, who are today responsible for the plight of the entire banking sector today are not punished; not a single defaulting promoter is in jail nor is a single bank employee who have connived with the company chiefs to siphon off underserved loans. In this scenario, today, when the FM cuts rates on small savings scheme to accommodate and placate the banks irks one to the core.
We are paying a cess on Swachcha Bharat; where exactly is that money going? We do not see any cleanliness anywhere…if it begins with the people to keep the city clean then why the cess? We are paying more for any service, right from eating out to getting a pest control done. Our money gets us so much less; the value has dropped.
This might be the right move to have made, slashing small savings rate, economically but politically and even socially, this is a move which will haunt the Govt; when the Govt pinches where it hurts the most, surely the immediate reaction will be to yelp in pain and shove away!