Small Saving Schemes

WHAT ARE SMALL SAVINGS SCHEMES (SSS) ?

An important component of India’s financial savings scenario is the large-scale participation of general public through various small saving schemes initiated by the central government. 

In this context, the Small Saving Schemes (SSSs) are important source of household savings in India. 

Different small saving schemes have mobilized money from households and channelized it to government so that the centre and states can finance a part of their expenditure.

The Small Savings Schemes can be grouped under three: 

• Post office Deposits: Post Office Savings Account, Post Office Time Deposits (1,2,3 and 5 years), Post Office Recurring Deposits, Post Office Monthly Account 
• Savings Certificates: National Savings Certificate and Kisan Vikas Patra  
• Social Security Schemes: Public Provident Fund, Senior Citizens Savings Scheme, and Sukanya Samriddhi Account

The Central Government operates Small Savings Schemes (SSS) through the nationwide network of about 1.5 lakh post offices, more than 8,000 branches of the Public-Sector Banks, select private sector banks and more than 5 lakh small savings agents.

The government on 1st APRIL 2021  reversed interest rate cuts across a host of small savings schemes announced a day earlier. Small savings scheme rates are reset quarterly, and have been falling over the past few years. A look at the small savings and trend rates. 

1. Small savings collections have been rising over the years

2. In 2016, their interest rates were benchmarked to market rates

• High Interest rates were seen to be distorting the interest rate structure
• Faced with competition from small savings, banks could not cut deposit rates
• High deposit rates meant lending rates could not be lowered
• Market rates on these savings have addressed the issue

3. So the rates had falling over the past few years

• Over the years interest rates have dropped

 

4. Bengal tops in small savings collection

5. The decision on reversing rate cut may have been political, but economists are also divided on the matter

• In Favor of rate cut

1. It is an important reform that did away with administered rates
2. Lower rates will help reduce borrowing costs
3. Cheaper loans will support the economy

• Case for reversal

1. Savers also need to be incentivised; too much emphasis on borrowers
2. Pandemic economy dependent on large government borrowing
3. Savers have to provide those funds

6. How the small savings rates are set

• Beginning April 1, 2016 rates on small savings linked to market rate
• Rate on each small savings instrument linked to G-Secs of comparable maturity period
• Final rate is a 25-100 basis point markup over the appropriate G-Sec rate
• The highest 100 basis point markup is on Senior Citizen Savings Scheme
• Rates are reset at the beginning of every quarter
• Over the past year, G-Sec rates have steadily fallen in line with low inflation and reduction in policy rates