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Review of interest rate cut ruled out

Our Bureau

NEW DELHI, Jan. 18

THE Finance Ministry has rejected the demand of State Governments to review the cut in interest rates on small savings, even as it has directed all public sector banks and post offices to commence accepting deposits under the small savings scheme and Pub lic Provident Fund (PPF) from January 24 instead of February 1, 2000.

The Government had cut the interest rates on a host of small savings schemes by 100 basis points last Friday to align them with the interest rates prevailing in the market on similar instruments. It had also slashed the interest rates on deposits under t he PPF from 12 per cent to 11 per cent.

The Finance Minister of West Bengal, Dr. Asim Das Gupta, had communicated to the Union Finance Minister, Mr. Yashwant Sinha, the suggestion of several States that the interest rate cut be restricted to 50 basis points till such time that a final view on the matter is taken in consultation with the State Chief Ministers.

However, sources said that the Centre would not review its decision. States had also sought immediate resumption of the acceptance of deposits under these schemes _ which the Finance Ministry has accepted.

Finance Ministry officials reiterated that the States would not be losers, since the latter's share against net collections under the small savings schemes has been enhanced from 75 per cent to 80 per cent. The Centre has also passed on the benefits of l ower interest costs on small savings and PPF deposits to States and Union Territories by lowering the interest rate on special securities issued against these collections from 13.5 per cent to 12.5 per cent.

Officials added that savings to the Government on account of the interest rate cut on small savings will accrue over a period of time, depending on the nature of instruments. These include post office time deposits for one, two, three and five years, pos t office recurring deposits, post office monthly income account, National Savings Scheme-1992, National Savings Certificate-VIII issue and Kisan Vikas Patra.