Government (Postal/PPF) Saving Schemes

Shyamala Gopinath panel recommendations

 

In 2011, The Government has recently accepted the recommendations of former RBI deputy governor Shyamala Gopinath panel which would help investors earn higher interest on small savings schemes such as public provident fund and post office deposits. A government panel, set up to review the small investment schemes of post offices and banks, has recommended discontinuation of the popular Kisan Vikas Patra, among other changes.

The committee has also proposed a 0.5% raise in the interest rate for post office savings account to 4%, reduction in the maturity period of National Savings Certificates (NSCs) to five years from six, and raising the annual contribution limit in Public Provident Fund (PPF) toRs 1 lakh, from the current Rs 70,000. 

What is market-linked interest rate system for small savings scheme and other panel recommendations?

1. One of the most significant recommendations by the Shyamala Gopinath panel was making the returns of small saving schemes market-linked. This means that now from this financial year, the rates for small saving instruments will be benchmarked to those of government securities (G-secs) of similar maturity periods with a positive mark-up of 25 basis points (bps). 
2. However, for Senior Citizen's Savings Scheme (SCSS), the mark-up is 100 bps  
3. To address the need for a long-term investment instrument, it has recommended introduction of a 10-year NSC scheme. The Panel recommended 50 basis points spread for the recommended 10-year NSC, keeping in view of its higher illiquidity.
4. Interest on loans from PPF raised to 2% per annum from 1%
5. Commission on PPF (1%), Sr Citizens Savings Scheme (0.5%) discontinued   

Kisan Vikas Patra is popular. Why then it was discontinued?

Shyamala Gopinath panel had said in its report that continued popularity of both Kisan Vikas Patra (KVP) and NSC among the urban population who are not all small savers could be prompted by an incentive to avoid tax. The KVP is more popular as it is a bearer-like certificate due to its ease of transfer. It also has an in-built liquidity due to the regulated premature closure facility offered in the scheme. However, in view of the recent developments on Anti Money Laundering/CFT front, the committee recommends that KVP should be discontinued