Returns on post office savings still favourable: Montek

Planning Commission Deputy Chairman Montek Singh Ahluwalia today justified the lowering of rate of interest on small saving schemes saying the returns remain favourable to depositors in real term.

"In real terms, inflation is much lower than it was two years ago. So, in real term, the interest rate is more favourable," Ahluwalia said on the sidelines of Skoch summit.

"I don't believe that interest rate for savers through the post office system can be delinked completely from the interest rate system in the country," he said.

The government has decided to cut rate of interest on post office small savings by 0.1% for 2013-14. The interest rate of Public Provident Fund (PPF) has been lowered from 8.8% to 8.7% with effect from April 1.

The National Savings Certificates (NSC) having maturity of five and 10 years will now attract 8.5% and 8.8% interest respectively, down 0.10% each.

The rate for senior citizens savings scheme (SCSS) will now be 9.2%, down from 9.3%.

The decision is in line with the recommendations of Shyamala Gopinath Committee, which had suggested that returns should be in sync with market rates, determined by those offered by other securities.

Ahluwalia said: "If you want low (interest) rate environment, you cannot say, 'I want higher interest rate for savers and low interest rate for borrowers'. They have probably moderated (interest rate) a little bit in line with the softening of interest rates."

The Reserve Bank has recently cut short term borrowing and lending rate by 0.25% to boost economic recovery.

India's economic growth slowed further to 4.5% in the October-December quarter of current fiscal, and the gross domestic product (GDP) in the first nine months (April- December) of 2012-13 is at 5%.

Central Statistical Organisation in its advance estimates has projected that Indian economy will grow at a over decade low growth rate of 5% in the current fiscal.

However, according to Ahluwalia, India can achieve over 6.5% economic growth next fiscal.