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No easy options for government after small savings scheme interest rate cut fiasco

The rollback of the significant cuts to interest rates of various small savings schemes reveal the increasing difficulty faced by government in managing the political economy while pursuing lower interest rates to stimulate growth. The savings scheme interest rates are lower or just a little over the inflation rate, signifying the anxiety among the middle class over poor returns on investment that came bubbling to the surface in the aftermath of the rate cut.

The April 1 fiasco, now explained away as an oversight, may also have to do with the ongoing elections to five states. In states like Tamil Nadu, Kerala and Puducherry with high banking percolation and sizeable middle class, NDA would have struggled to offer answers for this untimely move, just as people were coming out of an economic slump. Centre had tided over the phase where fuel prices kept shooting up without attracting much public ire, but in this instance the middle class backlash was immediately perceptible. But with interest rates in free fall, it remains to be seen how much longer small savings schemes can escape another round of rate cuts.

Read also: Government withdraws interest rate cut order on PPF, other small savings scheme

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