Small savings schemes: Citizens dependent on it are facing a harrowing time

On March 31, the government announced a cut in interest rates to the tune of 90 basis points (1 percentage point = 100 basis points) on all small savings schemes from Senior Citizens Savings Scheme (SCSS) to Public Provident Fund (PPF), but rolled it back within a few hours.

Though the common man, a large section of whom are dependent on interest income from small savings instruments, heaved a sigh of relief, the relief might be temporary. A look at the rate of interest on various instruments over the past one decade reveals a steep decline.

The small saving instruments that are popular in the country are PPF, SCSS, Sukanya Samriddhi Scheme (SSS), fixed deposits of various tenures, National Savings Certificate (NSC) and Kisan Vikas Patra (KVP).

The range of decline is from 95 basis points (PPF) to 175 basis points since 2011 (3-year fixed deposit).

“For the common man, small savings are an extremely important tool for financial security. But over the past 10 years, the interest rates have come down drastically,” said Avik Roy, Senior Deputy General with Bharat Chamber of Commerce.

The only instrument where interest rates have risen in the past decade is the savings bank, where the rates went up from 3.5% in 2011 to 4%.

In 3-year fixed deposit scheme the interest rate has been slashed to 5.5% from 7.25%. The drop in recurring deposit scheme was from 5.8% to 7.5%.

In 2011 the interest rate of Kisan Vikas Patra (KVP) was 8.4%. In 2011 it stands at 6.9%, recording a dip of 150 basis points.

The interest rate in PPF, one of the most popular and recommended instruments, tumbled from 8% to 7.1%.

For SCSS, the current interest rate is 7.4%, while in 2011 it was 9%. A total of 160 basis points was the dip in SCSS, which is the mainstay of many senior citizens in the country.

The 5-year NSC and 5-year fixed deposits, too, suffered rate cuts. The interest rates on these two instruments stand at 6.8% and 6.7% respectively. In 2011 the interest rates of the NSC stood at 8.4%. The 5-year NSC was launched in 2012 with an interest rate of 7.5%.

The SSS was launched in January 2015 bearing 9.1% interest. It now stands at 7.6%.

“We have already sent memorandum to the Prime Minister and Finance Minister, urging them to stop the slide in rate cut on the small savings instruments since a huge number of common people are dependent on these,” said Nirmal Das, general secretary of West Bengal small savings agents association.