Cut in borrowings hinges on small savings, RBI stance: Govt

The government on Tuesday said it was pinning hopes on an increase in interest rates on small savings schemes from next month and an expected cut in policy rates by the Reserve Bank of India (RBI). These, the finance ministry expects, will attract depositors back into the schemes and help the government borrow less than the budget estimates of Rs 5.69 lakh-crore in the current financial year.

"The small savings rates have been revised upwards. We hope that repo rate will start coming down because of lower inflation," pointed out Economic Affairs Secretary R Gopalan. "Once that happens and with the rate of small savings, it is possibile that more amount flow into the small savings and, to that extent, general borrowing will be less."

If small savings collection improves, it will "definitely bring down" borrowings from the budgeted level, Gopalan told reporters after a meeting of the officials of the finance ministry and the RBI to fix an indicative calendar for the first half of 2011-12.

The finance ministry had yesterday announced raising interest rates on various fixed deposits and other small savings schemes in the range of 0.2 to 0.5 percentage points.

The new rates will be in the range of 8.2 per cent to 9.3 per cent. However, 9.3 per cent rate is for senior citizen savings scheme. Otherwise, the highest rate of interest is 8.9 per cent in the National Savings Certificate (NSC). Fixed deposit rates offered by banks range from 7 per cent to 9.25 per cent. The rates on the Public Provident Fund will be raised from 8.6 per cent to 8.8 per cent.

Savings deposits will, however, continue to attract four per cent interest rates. Most banks too offer four per cent interest rates on savings deposits.