Modi govt increases interest rates on Sukanya scheme, PPF for Q3 2018-19

New Delhi: In a major boost for the middle class and investors, the Modi government has decided to raise interest rates of small savings schemes by 30-40 basis points for schemes like National Savings Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP), among others, for the October December quarter for the current fiscal. 

According to a Finance Ministry notification, investments in Public Provident Fund (PPF) and National Savings Certificate (NSC) will fetch annual interest rate of 8% as compared to existing 7.6%, while Kisan Vikas Patra (KVP) will yield 7.7% and mature in 112 months as against 118 months in the previous quarter.

Keeping its focus on the development of the girl child, the government has increased the interest rate of Sukanya Samriddhi Account from 8.1% to 8.5%.

The interest rates for these schemes are revised on a quarterly basis and have been benchmarked to market interest rates since April 2016.  The interest rates were last revised in the January-March quarter of 2017-18, following which the finance ministry kept them unchanged for two quarters.

The interest rates on savings deposits have been retained at 4% per annum. Only term deposits on one to three-year period will have a slightly lower interest rate, 0.3%

The announcement will bring relief for fixed income investors. The interest rates had remained static for the previous two quarters and there was, in fact, a reduction in the interest rates on small savings schemes during January-March 2018 quarter.

Collection and investments in small savings schemes are crucial as it is one of the means for the government to finance its fiscal deficit. The government’s fiscal deficit has touched Rs 5.40 lakh crore for April-July, almost 86.5%, of the budgeted target of the 2018-19 fiscal.

The move is expected to see banks lowering their deposit rates in line with the small savings rate offered by the government.