P Chidambaram slams govt for interest rate cuts in small savings schemes

Former finance minister P Chidambaram has slammed the government’s decision to cut small savings interest rates on a number of instruments from anywhere between 70 basis points to 140 basis points.

Chidambaram took to Twitter to criticise the central government’s move. “In times of acute distress and uncertainty about income, people depend on the interest income on their savings. Government must reconsider immediately and restore old rates until June 30,” he wrote.

The Congress veteran, who has served as finance minister in the Union government during four separate stints, questioned the timing of the move and came down heavily on the decision, terming it “stupid”.

“While reducing the interest rate on PPF and small savings may be technically correct, it is absolutely the wrong time to do so.

“I know that sometimes government acts on stupid advice, but I am amazed how stupid this advice was!”

The government cut the rate on the Public Provident Fund (PPF) for the April-June period by 80 bps, or from 7.9 percent to 7.1 percent.

It slashed the National Savings Certificate (NSC) rate by 110 bps from 7.9 percent to 6.8 percent.

The rate on Kisan Vikas Patra has been slashed by 70 bps, from 7.6 percent earlier to 6.9 percent.

The rate on 5-year recurring deposit has been cut by 140 bps from 7.2 percent to 5.8 percent while that on time deposits has been slashed by 100 bps, from 7.7 percent to 6.7 percent.

Rates on small savings schemes are revised on quarterly basis.

India is currently under a 21-day lockdown in an attempt to counter the spread of the coronavirus pandemic. The slowing economic activity subsequent to the lockdown has raised uncertainty about people’s incomes with a number of private firms resorting to pay cuts.

Several government agencies have also asked employees to take pay cuts.

There are widespread fears of a possible recession the longer the pandemic continues. "The global health crisis is rapidly morphing into a global recession, as there is a clear tension between preventing infections and ruining the economy," Edoardo Campanella, an economist at UniCredit Bank in Milan, recently said.