Interest rates on various National Saving Schemes amended to spur economic growth

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Who: Regulations governing National Saving Schemes
What: Amended
When: 16 February 2016
Why: To spur economic activity

The Union Ministry of Finance on 16 February 2016 announced changes to regulations that govern interest rates on various National Saving Schemes (NSSs).

The changes primarily focused on aligning interest rates on NSSs with other comparable saving instruments so that the operation of NSSs will become market oriented.

The changes, which will come into effect from 1 April 2016, were announced in the interest of overall economic growth of the country, even while protecting their social objectives and promoting long term savings.

At present, Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme and Monthly Income Scheme, National Saving Certificates, Public Provident Fund and Kisan Vikas Patra (KVP) are considered as part of NSSs.

The Union Ministry of Finance on 16 February 2016 announced changes to regulations that govern interest rates on various National Saving Schemes (NSSs).

The changes primarily focused on aligning interest rates on NSSs with other comparable saving instruments so that the operation of NSSs will become market oriented.

The changes, which will come into effect from 1 April 2016, were announced in the interest of overall economic growth of the country, even while protecting their social objectives and promoting long term savings.

At present, Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme and Monthly Income Scheme, National Saving Certificates, Public Provident Fund and Kisan Vikas Patra (KVP) are considered as part of NSSs.

Why these changes were announced?

At present, small saving schemes offer higher interest rates when compared to that of other comparable public and private saving instruments in the market.

This interest rate disparity is perceived to limit the banking sector’s ability to lower deposit rates in response to the monetary policy of the Reserve Bank of India (RBI).

In effect, there is insufficient monetary transmission leading to higher interest rate regime in the financial market, which in turn is leading to less investment and ultimately resulting in lower economic growth.

Hence, in the context of easing the transmission of the lower interest rates in the economy, the government took a comprehensive view on the social goals of National Small Savings Schemes and revised them accordingly.

These new regulations are expected to help the economy move to a lower overall interest rate regime eventually and thereby help all, particularly low-income and salaried classes.