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Small Savings Schemes

Context:

Recently, the government kept interest rates unchanged on Small Savings Schemes, including NSC (National Savings Certificate) and PPF (Public Provident Fund), for the second quarter of 2022-23 amid high inflation and rising interest rate.

  • The interest rate on small savings schemes has not been revised since the first quarter of 2020-21.

Relevance:

GS III- Indian Economy

Dimensions of the Article:

  1. About Small Saving Schemes/Instruments
  2. What are the different saving schemes?

About Small Saving Schemes/Instruments

  • They consist of 12 instruments and are the main source of household savings in India.
  • Depositors receive a guaranteed interest rate on their funds.
  • They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.
  • The National Small Savings Fund receives payments from all small savings instruments (NSSF).
  • Small savings have become a crucial source of funding the government deficit, particularly when the Covid-19 outbreak caused the deficit to inflate and further borrowing became necessary.
Determination of Rates:
  • Interest rates on small savings schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity. The rates are reviewed periodically by the Ministry of Finance.
  • The Shyamala Gopinath panel (2010) constituted on the Small Saving Scheme had suggested a market-linked interest rate system for small savings schemes.

What are the different saving schemes?

Small savings instruments can be classified under three heads:

  • Postal Deposits (comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme).
  • Savings Certificates: National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP).
  • Social Security Schemes: Sukanya Samriddhi Scheme, Public Provident Fund (PPF) and Senior Citizens‘ Savings Scheme (SCSS).

-Source: Indian Express


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