Small Savings Schemes Face Potential Rate Reductions

Following the Reserve Bank of India's (RBI) decision to cut policy rates for the first time in five years, the government is poised to lower interest rates on small savings schemes, including the Public Provident Fund (PPF), in the next financial year. Despite the upcoming review scheduled for March 31, covering the April-June quarter, an immediate rate cut is unlikely. This is due to the expected delay in the transmission of the lower rate regime and the typical surge in bank deposits during the financial year's fourth quarter.

"This is the best time to invest in deposits. Rates on small savings are expected to decrease at some point next year," a source mentioned. Government sources highlight the continued attractiveness of schemes like PPF, which offer tax benefits and the advantage of compounding interest. For the next fiscal year, the government has allocated a net small savings budget of Rs 3.4 lakh crore, a decrease from the revised estimate of Rs 4.1 lakh crore for the current year. Additionally, the government has set aside approximately Rs 20,000 crore for refunds under the Mahila Samman scheme, which concludes in March. Currently, the PPF offers a 7.1% return, while the Sukanya Samriddhi Yojana provides an 8.2% return.