In a development that will benefit millions of small savers, the government has decided to increase the interest rates on post office savings deposits to 4 per cent, from 3.5 per cent at present.
“We have taken a decision. We will be issuing a release on that soon,” Economic Affairs Secretary R Gopalan said.
Small savings schemes run by post-office, which are a major source of government’s borrowings, are losing sheen as interest rates offered on bank deposits are more attractive.
Most of the banks are giving 4 per cent interest on savings bank deposits, though some lenders, following freeing of this rate by RBI, are giving a return of 6 per cent.
Shyamala Gopinath Committee, which was constituted by the government last year to review the national Small savings scheme, had suggested linking of interest rates on small savings with that of the market.
Reforms in the small savings schemes is long due as the government has not acted on similar recommendations of Y V Reddy Committee report submitted in 2001.
Besides other recommendations, the Gopinath Committee had suggested that interest rate for one-year small deposit scheme should go up to 6.8 per cent from 6.25 per cent and introduction of 10-year National Saving Certificate scheme.
The government had to increase its market borrowing programme to make up for the shortfall in collections from the National Small Saving Fund (NSSF).
The Centre had initially estimated that NSSF would yield around Rs 24,000 crore, but there was net outflow of Rs 35,000 crore from the corpus during April-September.