FM Arun Jaitley defends cut in rates of small savings

Union finance minister Arun Jaitley on Sunday defended the move to cut interest rates on small savings as a move towards lower interest rates to make the economy more efficient rather than sluggish.

Jaitley told the media at the Bharatiya Janata Party national executive meet here that interest rates on small saving schemes are formula based and the government uses its resources to give subsidy on these schemes above the rates determined by the market.

Rejecting the criticism of Congress vice-president Rahul Gandhi for reducing interest rates on public provident fund (PPF) and senior citizen saving schemes among others, Jaitley said that the earlier United Progressive Alliance government also went by the same formula but the rates were high during that time due to the sluggish economy.

"The formula has been there for long; we did not make it. The market determines the interest rate and the government gives a subsidy on its securities, including saving schemes, above it.

We give it in PPF; we give a little more on senior citizen schemes. It's formula driven; it's linked to the market. Interest rates had risen a lot earlier, but now they have come down."

The minister added that the way the "economy is moving today, we cannot have a situation where lending rates are going down but deposit rates remain high; both are linked".

"To make economy more efficient rather than sluggish, the country has to move towards lower interest rates in both," he further added. "The PPF interest rate at 8.1 per cent remains reasonably lucrative as nowhere in the world it is so high. As it is tax free, the actual earning is close to 11.12 per cent," the minister said.