Help savers: Let interest rates turn more flexible

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₹664 crore surplus it expects after holder accounts are credited. Since the bulk of its corpus is invested in debt, especially securities issued by the government, the scope for larger returns is limited. The EPFO was allowed a thin slice of equity investments to boost returns by taking on a bit more risk, but its share portfolio has been kept under the official limit.

Given that the fund holds the lifelong savings of our salaried class, safety must dictate its holdings. Yet, a slight risk-return upshift might help it pay more and stay in better sync with market rates for the satisfaction of savers. What about other savers? At the end of June, the Centre raised the payout rate on some small savings instruments, like post-office term deposits of 1 year, by up to 30 basis points.

Other small saving options such as the Kisan Vikas Patra and National Savings Certificate had got raises in earlier quarters. Oddly, though, the public provident fund (PPF) has been left out. Its rate of interest has stayed at 7.1%—a multi-decade low—for more than three years now.

The last change made was an 80 basis points cut in April 2020 that brought it to its current level. Surely, PPF savers would wonder why they have been denied payout hikes, especially amid rising rates all around over the past year. Market yields have risen substantially in tandem with the Reserve Bank of India’s policy rate increase of 250 basis points.

While most market-linked schemes have seen rates go up, PPF savers await their turn. One explanation offered is that the effective return on these savings is still attractive since the investment, returns and final withdrawal all enjoy tax exemption. This argument, however, falls flat if one considers that EPFO