Will Modi 3.0 government raise interest rates on PPF, SSY, and other small savings schemes for next quarter?

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Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Mahila Samriddhi Saving Certificate, Kisan Vikas Patra, National Savings Certificate (NSC), and Senior Citizen Savings Scheme (SCSS) have their interest rates due for review. The government determines the interest rates for these small savings schemes every quarter.The government had kept the interest rates on small savings schemes unchanged for the April-June quarter.Ashish Aggarwal, Director at Acube Ventures, suggests that a hike in interest rates would signal a move towards encouraging household savings, which have been stagnant in recent years.

However, it also entails considering the government's capacity to manage higher interest payouts.Global considerations are crucial, as many countries still maintain relatively low interest rates. A substantial increase could potentially disadvantage India internationally.Aggarwal proposes that the government adopt a staggered strategy, adjusting rates for long-term investments to promote savings without unduly straining the treasury.Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, highlights that the interest rates on PF, ESAF, and small savings schemes are sensitive political issues for the government.

While there is pressure to increase rates to benefit millions of small savers, especially during periods of inflation, there are significant fiscal implications to consider. Higher interest rates would lead to increased government expenditure and potentially higher fiscal deficits.Additionally, the government must weigh these decisions against the broader macroeconomic environment, including the RBI's monetary policy and bank deposit rates.