The Hindu Business Line : Interest rate on small savings may be cut

The Government has said that the high yield on small savings schemes has been one of the primary reasons behind the high real interest rate in the economy.

Given the huge size of the public debt and other liabilities of the Centre and States, the high interest rates and interest payments continue to strain public finances severely.

Although inflation has fallen over the last few years and interest rates have reduced, the adjustment of the administered interest rates has not been commensurate with the greater fall in inflation.

The real interest rates are therefore high, a point which Indian industry has been stressing on time and again.

Besides, regulation of interest rates in the contractual sphere - small savings and provident fund - has also led to distortions in the interest rate structure, the Economic Survey has said.

Administered interest rates have also come in the way of integration of domestic financial markets, besides leading to market segmentation.

Interest rates provided on contractual savings in real terms have been high during the last few years.

The Survey has highlighted the unsustainable burden that the incidence of real interest rates had on both the Centre and the States.

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