Rise in interest rate and investment limit from December 1 to help net receipts recover lost ground.
The rise in interest rates on the Public Provident Fund (PPF) applicable from December 1 is set to lead the improvement in net small savings collections – deposit minus withdrawals -- in the remaining four months of the current financial year. The government has increased the PPF interest rate from eight per cent to 8.6 per cent from December 1. The rates on other post office small savings schemes have also been raised. The gross net small savings collections during April-September this year stood at a negative Rs 13,097 crore, with gross collections of Rs 1,82,556 crore and Rs 1,95,653 crore of withdrawals.
Net receipts from PPF till September in the current financial year was only Rs 1,324 crore -- Rs 9,863 crore deposit and Rs 7,193 crore withdrawal. Net PPF contribution to the National Small Savings Fund (NSSF) in 2009-10 and 2010-11 had been Rs 24,777 crore and Rs 22,510 crore, respectively.(Click here for table)
Besides raising the PPF interest rate from December 1, the government has also raised the ceiling on annual contributions to the fund to Rs 1 lakh, from Rs 70,000. D Swarup, former expenditure secretary, said although it would be difficult to reach the levels of the previous two years in terms of net collections, around Rs 10,000 crore could be reached at the end of the financial year. He added that December-March were the crucial four months, when people invested in PPF for getting income tax benefit.
Net collections from various savings deposits during April-September was a negative Rs 15,344 crore – Rs 16,458 crore of deposits and Rs 17,9923 crore of withdrawals. In 2009-10 and 2010-11, net receipts from this head stood at Rs 33,679 crore and Rs 31,613 crore, respectively. The net collections from savings certificates in 2009-10 and 2010-11 were Rs 5,894 crore and Rs 45,30 crore, respectively, as against Rs 922 crore till September this year. Loans from NSSF are one of the sources to finance the annual plan of states. The shortfall in net collections in small savings schemes apparently means lower loans to states from the NSSF, which would have to be made good by the states from other sources of financing. The interest rate rises for PPF and other small savings schemes are aimed at recovering the lost ground in the next four months.
Interest rates on savings accounts in post offices have been raised to four per cent from 3.5 per cent at present. Rates on deposits of other maturities have also been raised. The Monthly Income Scheme would earn interest of 8.2 per cent, but accounts opened on or after December 1 would not be entitled for bonus.
