Legislative action unlikely in small-savings review

The proposed review of small savings schemes announced by Finance Minister Arun Jaitley is likely to be cautiously done. And, might not need legislative action.

The most manifest end-result of such a review could be linking of the interest rates of such schemes to the market, a politically sensitive move, as these offer attractive rates for groups such as senior citizens and farmers.

Hence, the government will take a "holistic view" and involve all stakeholders in a review, senior officials said.

On Tuesday, in a press conference held following the Reserve Bank of India's rate cut, policymakers in the government had said the Centre would work to facilitate the transmission, including by reviewing the framework of small savings.
 

When pressed on details, Jaitley had said this would be in due course of time. "Let's not the prejudge the issue. The government will undertake a review, of all aspects," economic affairs secretary Shaktikanta Das had added.

The central government's small savings schemes include savings deposits with maturity of one to five years, senior citizens savings schemes, monthly savings schemes, national savings schemes with maturity of five and 10 years, public provident fund, kisan vikas patra, and a sukanya samridhi account scheme.

With attractive interest rates of 8.4 per cent to 9.3 per cent, these are popular and provide some reason why banks, in competing with the schemes, hesitate to transmit an RBI rate cut.

Most of these schemes are governed by executive rules. The only enactments are the Public Provident Fund Act and the Government Savings Certificate Act.

Details as to what the review might entail are sketchy. Officials say the announcement was only on Tuesday and that was the first most of them had heard of it. "Tweaking of rates only requires a notification, not an amendment to an Act," said a senior official.

Even a tweaking of the deposit mechanism or maturity will only require a notification, the person added. The only scenario where parliamentary approval might be required is if a new scheme is introduced, the official said.

However, even if the matter doesn't reach Parliament, it can still be a politically loaded issue, officials conceded. "These schemes are not tied to market interest rates for a reason. Once you lower interest rates for groups like the elderly, farmers and a lot of lower income people who put their life's savings in post offices, the issue becomes a sensitive one," said a second official