Arun Jaitley explains why interest rate cut on PPF deposits (video)

New Delhi

Finance Minister Arun Jaitley during his media interaction today clarified govt position on recent cut on the interest rate on PPF from 8.7 percent to 8.1 percent:

– There’s an established old formula for last many years. Government securities interest rate is market linked, and it is determined by market. Govt offers some subsidy for small savings like PPF, senior citizens and Sukanya Yojana savings scheme from its own budget.

– Government takes debt from market and its rates do fluctuate.

– When interest rates were high, the burden was on government. Now interest rates on govt securities have come down. In today’s situation we can’t allow a situation where bank’s lending rates come down, but deposit rates continue to remain up. The country has to move towards lower interest rates in both.

– Earlier the government would decide it once every year, but now due to more fluctuation in rates, it is reviewed every quarter.

– Tax free 8.1% interest if clubbed with tax slab would be 11 or 12%. This is still lucrative and high rate of return.

– DeshGujarat