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Y.V. Reddy panel to review rates on small savings

Our Bureau

NEW DELHI, April 30

THE Finance Ministry has appointed Dr Y.V. Reddy, Deputy Governor of the Reserve Bank of India (RBI), to head a 10-member expert panel to review the existing system of administered interest rates on small savings schemes including public provident funds (PPFs) and contractual savings schemes.

The constitution of an expert committee to explore a better system for determination of interest rates on small savings schemes was announced by the Finance Minister, Mr Yashwant Sinha in the Budget this year.

The Government has roped in three outside experts as members. They are Dr. R.H. Patil, former Chairman of the National Stock Exchange, Dr. Suman Bery, Director General of the National Council for Applied Economic Research, and Mr. M.G. Bhide, Chairman, N ational Institute of Bank Management.

The review by the Government now has been necessitated by the mounting interest burden on these schemes. The total deposits under the National Small Savings Fund has been budgeted at Rs. 3,04,791.44 crore during 2001-02. The interest liabilities against this works out to Rs. 22,471.29 crore.

The Government's case is that in a falling interest rate regime, the anomaly of a contractual savings scheme offering a high interest rate needs to be corrected.

Other members of the panel include Dr Rakesh Mohan, Advisor to the Finance Minister, Mr D. Swarup, Joint Secretary, Budget, Department of Economic Affairs and Principal Secretaries (Finance) of four States - Maharashtra (Mr Anupam Das Gupta), Punjab, (Mr K.R. Lakhanpal), Kerala (Mr Vinod Rai) and West Bengal (Mr Ashok Gupta). The panel will, among other things, suggest the criteria for benchmarking of administered interest rates.

Benchmarking the interest rates to either the Bank Rate, or the term deposit rate of top commercial banks or the inflation rate was one of the suggestions mooted by some experts.

The committee's mandate also includes suggesting the periodicity of revision of administered rates. This is considered to be crucial if it is benchmarked, for revising the rates more than a couple of times annually may prove to be administratively cumber some for the Government, according to officials.

With a panel in place now, the Government is unlikely to give in to demands to enhance the interest rate on small savings schemes which was reduced by 150 basis points to 9.5 per cent in the Budget.

The Dr. Reddy Committee will examine the feasibility of transferring the entire proceeds of small savings to State Governments on a back-to-back basis and make recommendations on other aspects of small savings including designing of instruments, engageme nt of agents and rules governing deposits and withdrawals. Currently, 85 per cent of the proceeds from small savings are transferred to States.

The committee, which will submit its report in four months, can also co-opt members or special invitees to aid its deliberations. The first meeting is scheduled to be held this week.