Facing sharp criticism, the Central government has decided to reverse the drastic cuts to small savings schemes. The Union Finance Ministry announced sharp cuts in interest rates on small savings schemes for the quarter beginning April 1 in an order issued Wednesday evening.

The reduction was as much as 90 basis points for certain schemes. The step sparked outrage and may have put the ruling BJP in jeopardy in the ongoing assembly elections, prompting the government to act quickly to mitigate the damage.

Finance Minister Tweets

Finance Minister, Nirmala Sitharaman announced the reversal on Twitter. Stating that the order was an 'oversight', Sitharaman wrote, "Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021."

Nirmala Sitharaman on TwitterTwitter

However, at the time of filing this story, the Memorandum announcing the hikes on 31st March is yet to be removed from the website of the Department of Economic Affairs.

Department of Economic Affairs
Snapshot Department of Economic AffairsDepartment of Economic Affairs, Website

Steep hike in 31st March order

Even if the limited savings revision was due before the start of the fiscal year, it would have had a negative effect on middle-class and senior-citizen savings earnings. Small savings rates are typically adjusted every quarter to reflect current interest rates in the economy.

As the Reserve Bank of India is steadily lowering policy rates in recent months, a reduction in small savings rates was already on cards. Following a public outcry, the government agreed to rescind the Wednesday decree.

small savings mof post office ppf nsc kvp banks recurring deposit scheme senior citizens budget 2017
A man walks down the staircase of an Indian post office in New Delhi, IndiaReuters file

It is to be noted that the interest rate on the senior citizen savings scheme was reduced by 90 basis points to 6.5 percent from 7.4 percent. The public provident fund interest rate was cut by 70 basis points to 6.4 percent, down from 7.1 percent. Sharp cuts were also made to the National Savings Certificate, Kisan Vikas Patras, and the Sukanya Samriddhi scheme.