The central government decided to reduce the interest rates on small savings on the last day of the last financial year, but the decision was withdrawn on the very next day, i.e. on the first day of the new financial year.
Finance Minister Nirmala Sitharaman gave this information through a tweet. He wrote, "The interest rates of small savings schemes will remain the same as the rates in the last quarter of 2020-21." He also wrote that the order for reduction in interest rates was issued by mistake. It is being withdrawn.
That is, the post office small savings schemes, including PPF, Sukanya Samriddhi, Senior Citizen Savings Schemes, will get interest at the same rate during April-June 2021, which was for the January-March 2021 quarter.
What did the opposition say?
Within 24 hours, the decision of the government to withdraw these deductions, the leaders of opposition parties fiercely pulled the finance minister Nirmala Sitharaman and the government.
TMC MP Derek O'Brien tweeted, "Embarrassment once again. Because Mo-sha (Modi Shah) is busy throwing petals from trucks at election rallies, making false promises with April Fool's jokes. ''
So Congress General Secretary Priyanka Gandhi Vadra tweeted, "Was the decision to reduce the interest rates on the government's scheme made by mistake? Or has the wisdom to withdraw the decision came due to the election? ''
Trinamool Congress MP Mahua Moitra tweeted on Finance Minister Nirmala Sitharaman, "What is the biggest April Fools' joke here? That now small savings rate cuts were released in error? Or that Nirmala Sitharaman finances this country Minister? "
Congress leader Randeep Surjewala asked, "Honorable Finance Minister, are you running the circus or the government? People can understand the condition of the economy when the decision affecting millions is taken by mistake. You have lost the right to continue in the post as finance minister. ''
At the same time, IAS officer Ashok Khemka writes, "Saving in private sector is not safe. If we go with small savings, then where do we go?"
In small savings schemes, it is very popular among the common people due to the security of deposit, minimum deposit facility, and good returns. Among the schemes on which the Finance Minister had announced to reduce the interest rates, the most talked about was the Public Provident Fund, ie PPF and Senior Citizen Savings Schemes.
Why did the government withdraw the decision on interest rates?
Internationally, interest rates are going down. In developed countries like America, the interest rate will be zero or near it. It is the government's liability to pay interest on small savings schemes.
Personal finance expert Sharad Kohli says, "This amount comes under the government's expenditure. Because the fund is used by the government itself. It is using it in Consolidated Fund (Consolidated Fund) and paying interest on it. . "
He says, "During the Corona Virus epidemic, neither income tax nor GST revenue was completed. That is, the fiscal year was bad for the government in terms of revenue, so she started trying to reduce her expenses. The amount that the government is paying on these small savings schemes in the form of interest is a huge amount. So the government wants to reduce its expenses by reducing it. "
"But there are elections in five states and there are a large number of retired elderly aged over 60 years, whose life depends on income from PPF, savings scheme for the elderly, and other small savings schemes. Elderly women and widows of ex-servicemen are also involved. So when such people used to vote, they would have this cut in their minds and they would have voted accordingly. So it was not a very political move so the government took it back at present. is."
Can these interest rates be avoided?
Tax expert Dhirendra Kumar says that while the interest rates on the loans from banks on the one hand are decreasing, the rates of money that people are depositing in banks or post offices are also going to decrease.
Sharad Kohli says that when you want to take a cheap loan, then you have to get used to taking a lower interest rate on deposits. If consumers want a cheaper loan on the purchase of a car, house, TV, then how will more interest be possible on the deposit. Who would want to do business at a loss Neither the government will do nor the bank will do.
They say that if the country has to progress, the interest rates will have to come down. If we have to move from a developing to a developed country, then the interest rates will have to be like them. In the coming times, people will have to make a habit of charging less interest on deposits. "
Elderly people suffer the most
Says Dhirendra Kumar, a tax expert and stock market expert, "The rates of small savings schemes now change every three months. This time the change was much higher when it was changed, which the government decided to withdraw."
Says Dhirendra Kumar, "In the economy, a large number of people borrow through the banking system and invest their capital in various savings schemes. So a person who is dependent on the income earned by investing in it, his income has accelerated in the last few years. The decline has been seen. The elder who has invested a few lakh rupees in life and invests in banks and is dependent on the income earned from him, then his earnings have fallen a lot in the last four years. "
He says, "Up to four-five years ago, in such savings schemes, the capital investment of one crore used to earn about 10 lakh rupees annually, which has now reduced to about six lakh rupees annually. It seems to be seen. That the interest rate has come down from nine and a half percent to a quarter to six percent, but the income of the elderly has come down by almost one-third. Therefore, there should be no reduction in the interest rates on the Senior Citizen Saving Scheme.
Effect on PPF
Interest rates on PPF were reduced from 7.1 percent to 6.4 percent, the lowest rate since 1974.
PPF is one of the few investments in which there is a provision for tax exemption in three ways. In this, there is a tax exemption on the amount to be deposited at the time of investment. Even at the time of its withdrawal, neither its amount nor the interest earned from its interest comes under the tax net. Also, the interest rate on investment in it is much higher than other savings schemes.
Arithmetic of interest rate fall
Under the new interest rates announced on Wednesday evening, the interest rate of the Senior Citizen Saving Scheme was reduced from 7.4 to 6.5. It looks like a decrease of 0.9 percent, but if we take simple math, it is a decline of 12.16 percent in the new interest rate earnings.
It is understood from this example that an elderly man invested 10 lakh rupees in this scheme. So in five years, they will have to earn Rs 3.70 lakh from it. But the rate (6.5%) declared on this scheme would have reduced their earnings by about 45 thousand rupees.
Consider it as well that in the last four years, the rate of borrowing of a job person from banks has come down. Whether it is a personal loan or a home loan. In the future, it may be even less. That is, the interest he has to pay on taking a loan is decreasing. But at the same time an elderly person, who is investing his lifetime earnings, is getting a lower rate of interest, which is dependent on the income from the same interest rate.
Says Dhirendra Kumar, "It is important to reduce the interest rates to bring momentum into the economy, but the government should also aim to provide relief to a particular section (the elderly), because it is only on the income of their investment Are dependent. "
At the same time, he says that the government should increase the maximum investment limit under this scheme from 15 lakh to 50 lakh rupees, this amount is being kept with the government for a long time, which the government can use in many types of schemes. Will do
How does the government benefit from the fall in interest rates?
The government has the maximum benefit of reducing the interest rates because it borrows the most.
Dhirendra Kumar explains, "Whether the government takes loans from the bank or under SLR or through RBI bonds. Government of India bonds are the largest outstanding debt. So the government gets the biggest benefit from lower interest rates, He has to pay the least interest rates. "
Who benefits from lowering interest rates?
However, Dhirendra Kumar says that interest rates need to be reduced. They say that worldwide interest rates are low. Whereas there is more in India. This directly affects the business, as it affects its competitiveness.
Understand this again with an example that a businessman in India takes a loan at 10%, in the US it is 2%. If this businessman sets up a factory with a capital loan of one crore rupees, then he has to pay more than 10 lakh rupees as interest, whereas in America, the businessman will have to pay only about 2 lakh rupees on the same amount. So he will be able to sell his goods much cheaper than the Indian businessman.
Financial position of the government
The financial condition of the government is not good. The fiscal deficit has reached between 10 and 11 percent. Under the Fiscal Responsibility and Budget Management (FRBM) Act enacted in 2003, the government sets a target to reduce the fiscal deficit. Under this, if there is a fiscal deficit of more than three and a half percent, then money cannot be withdrawn from the Consolidated Fund (Consolidated Fund) without Parliament's permission.
Sharad Kohli says, "The government has relaxed this FRBM due to the coronavirus epidemic and it is between 9 and 11 percent. The financial condition of the government is not very good. But the financials started on April 1 (Thursday) Growth estimates are being given better in the year. All the international rating agencies along with the Reserve Bank, IMF, and World Bank have kept the growth estimate of the country above 10 percent. "
On Thursday itself, the GST collection for March has come to Rs 1,24,000 crore.
Kohli says, "GST collections are a sign that the condition is improving. But the situation of the Corona epidemic is once again deteriorating, which will not affect the industry again. Corona is once again becoming a villain." If the matter continues to grow in this way, then somewhere it will affect the financial condition of the country, there is no difference in it. "
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