India rolls back decision to cut interest rates on small savings

India’s Commerce and Industry Minister Nirmala Sitharaman speaks with media at the 3rd Intersessional Regional Comprehensive Economic Partnership (RCEP) Ministerial Meeting in Hanoi, Vietnam May 22, 2017. REUTERS/Kham

NEW DELHI (Reuters) – India has reversed its decision to lower interest rates by up to 1.1% on its state-backed small savings scheme, Finance Minister Nirmala Sitharaman said on Thursday, adding that orders to cut rates to a near five-decade low were issued due to an oversight.

Small savings are the lifeblood of India’s low and middle income groups, and cutting interest rates would have dealt a severe blow to hundreds of millions of Indians at a time when thousands have lost jobs and faced pay cuts due to the pandemic.

“India shall continue to be at the rates which existed in the last quarter of 2020-2021, i.e., rates that prevailed as of March 2021,” Sitharaman said in a tweet on Thursday.

“Orders issued by oversight shall be withdrawn,” she said.

A day earlier, on the last day of the 2020/21 financial year, India had cut interest rates on small savings by up to 1.1% for the June quarter. The government reviews interest rates on government-backed schemes every quarter.

Prime Minister Narendra Modi’s federal government has attempted to link state-backed small savings rates with yields on government bonds every 3 months.

However, interest rates have largely been kept above market rates, which experts say is due to fear of a backlash from middle class voters.

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