Small Saving Schemes, including the National Savings Certificate (NSC) and Public Provident Fund (PPF), have remained immune to changes in their interest rates for the first quarter of 2022-23. The government’s decision to keep these rates steady comes in light of elevated inflation levels. These instruments form a significant portion of household savings in India, gaining attention in recent times, particularly after the Covid-19 pandemic inflated the government deficit.
Defining Small Saving Schemes
Small Saving Schemes comprise about twelve different instruments that serve as a major source of household savings in India. The value proposition of these schemes lies in the guaranteed interest that depositors receive on their investments. In practice, the money accumulated from all small saving schemes is pooled into the National Small Savings Fund (NSSF).
The importance accorded to small savings has increased over time, largely due to its critical role in financing government deficits. The onset of the Covid-19 pandemic significantly exacerbated the government deficit, leading to an increased need for borrowing.
Classifying Small Saving Schemes
Small Saving Schemes can be broadly classified into three groups: Postal Deposits, Savings Certificates, and Social Security Schemes.
Postal Deposits are inclusive of savings accounts, recurring deposits, term deposits with varying maturity periods, and monthly income schemes. Savings Certificates encompass the National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP). Finally, Social Security Schemes include the Sukanya Samriddhi Scheme, Public Provident Fund (PPF), and Senior Citizens‘ Savings Scheme (SCSS).
Determining Interest Rates of Small Saving Schemes
The process of determining interest rates for small savings schemes is undertaken on a quarterly basis, with the rates being synchronized to the movement in benchmark government bonds of similar maturity. This system of interest rate adjustment is reviewed periodically by the Ministry of Finance.
The Shyamala Gopinath Panel, constituted in 2010, focused on the Small Saving Scheme and suggested a transition towards market-linked interest rates for small savings schemes. By linking these rates to market dynamics, the panel aimed at instilling a sense of volatility and competition within the sphere of small savings.
These schemes serve as key instruments in promoting household savings in India. The backing of governmental bodies, along with their immunization against inflationary measures, makes them a reliable and safe investment option for the common populace. Despite the uncertainties of 2022, these interest rates have remained steady, providing uninterrupted benefits for their investors.
