Timing is absolutely wrong: Chidambaram on Centre`s decision to slash interest rates on PPF, other savings schemes

Former Union minister P Chidambaram on Wednesday (April 1) slammed the Centre for slasing interest rates on PPF, NSC, SCSS, other Post Office Schemes amid coronavirus COVID-19 outbreak, saying that the decision may be technically correct but the timing is absolutely wrong. 

"While reducing the interest rate on PPF and small savings may be technically correct, it is absolutely the wrong time to do so," Chidambaram tweeted.

The senior Congress leader stressed that people depend on their savings in time of distress and uncertainty about income and suggested the government to restore old rules until June 30.

"In times of acute distress and uncertainty about income, people depend on the interest income on their savings. Government must reconsider immediately and restore old rates until June 30," he added.

On Tuesday (March 31), the Department of Economic Affairs, Ministry of Finance, had announced an interest rate cuts on small savings schemes for the first quarter (April to June) of Financial Year 2020-21. Interest rates have been reduced on various savings schemes between 70 basis points and 140 basis points as the RBI had recently reduced the repo rate by 75 basis points, thereby, giving a clear signal for rates to come down. 

According to the government notification, interest rates on Small Savings like Public Provident Fund (PPF), Kisan Vikas Patra, National Savings Certificate (NSC), Senior Citizens Scheme, Monthly Income Scheme have been reduced.

The Public Provident Fund (PPF) and Sukanya Samriddhi Yojana rate has been cut by 0.8 per cent or 80 bps each and it will now get an 7.1 per cent. Senior Citizens Scheme will get 7.4 per cent (interest cut by 1.2 per cent), Monthly Income Scheme will get 6.6 per cent (cut by 1 per cent), while NSC will get an interest of 6.8 per cent (cut by 1.1 per cent) for the April-June quarter.

Accordingly, post office time deposits of certain tenors have seen the sharpest cut of 1.4 per cent or 140 bps. Notably, interest rates on small savings schemes (except for post office savings account) were last revised in July 2019. Since then, interest rates have been kept unchanged.