Under pressure from the Left to increase interest rates on small savings, the government on Monday indicated its unwillingness to meet the demand while allaying apprehensions that the depositors were withdrawing their funds to invest in capital markets.
Under attack from the Left parties on the issue in Lok Sabha, Finance Minister P Chidambaram asserted that there was "no evidence" of outflow of deposits from small savings schemes. Dismissing the charge that government was discouraging small savings, he asked members how the savings rate could have increased by 4% if this were true.
He was replying to a calling attention motion on the issue initiated by CPI member Gurudas Dasgupta who attacked the government for "silently killing" small savings by continuing with unattractive interest rates.
Alleging that Chidambaram’s main intention was that small savings should become a part of capital markets, Dasgupta expressed the fear that soon small savings would become negative and the investors would withdraw funds to fall at the mercy of speculators.
He felt that the Finance Minister’s actions could jeopardise the political fortunes of the UPA government. If the outcome of Assembly elections in Punjab and Uttarakhand had failed to sensitise the government towards issues such as smll savings, then perhaps the UP poll results would do so, he said.
Other members like Rupchand Pal (CPI-M), Kharavela Swain (BJP) and Shailendra Singh (SP) also expressed serious concern on the issue.
Chidambaram told the House that there was a possibility of the Indian Infrastructure Finance Company Ltd (IIFCL) being allowed to access the National Small Savings Fund (NSSF).
Arguing against a hike in the interest rate on small savings, the minister pointed out that collections under these schemes constituted a significant portion of revenue for the state and any increase in deposit rates would require a concomitant increase in the on-lending rate to the states.
Any increase would be resisted by state governments who have not been comfortable even with the existing rates of 9.5 per cent for 25 years, he said.