New Delhi: The Centre, on Thursday, hiked the interest rates for small saving schemes including Public Provident Fund (PPF), Kisan Vikas Patra, girl child saving scheme Sukanya Samriddhi Account, National Savings Certificate (five years) and post offices deposits among others by 0.3-0.4 per cent for the quarter ending on December.  However, interest on savings deposits has been retained at 4 per cent, annually.

The interest rates,  which are revised quarterly depending upon prevalent rates for government securities, has been hiked in line with banks raising their rates.  The move is aimed to encourage small savings and promote the welfare of senior citizens and girl child. Also the funds raised through small saving schemes are an important source of funding for the government.

A high mop up of funds through small saving schemes decreases the government’s market borrowing needs and leaves more funds for the private firms to borrow.  

However, on downside critics have said that the cost of government borrowing in past from small saving schemes has been higher than the market.   

Small savings schemes accounted for a little over a fifth of all the central government borrowing in FY18, up from 17.2 per cent a year before and 2.4 per cent in FY14, as per reports.  This was the highest contribution from small savings in 19 years.

The government had said that it intends to use larger inflows from Small Savings Schemes to fund its fiscal deficit for 2018-19.

“The government will borrow `1 lakh crore from National Small Savings Fund (NSSF) as against budgeted amount of `75,000 crore,” a statement from finance ministry had said.

“To promote welfare of the girl child and improve financial security of the elderly, the government, from October 1, has increased returns on Sukanya Samridhi Yojana from 8.1 per cent to  8.5 per cent, and on senior citizens savings scheme from 8.3 per cent to 8.7 per cent. To support small savers the interest rates for small savings scheme have been increased by 0.3-0.4 per cent for the third quarter of this year,” finance minister Arun Jaitley said.

As per the finance ministry notification, the interest rate on popular PPF has been increased to 8 per cent for the third quarter from 7.6 per cent.

The interest rate on PPF deposits was as high as 8.8 per cent on April 1, 2012. Since then, the interest rate have declined gradually. Meanwhile, PPF deposits are exempt from income-tax.