Public Provident Fund panel report may not mean much

The suggestion of the committee on comprehensive review of National Small Savings Fund to improve the state of the Public Provident Fund (PPF), 1968, may sound great on paper, but it has drawn less enthusiasm from experts. Headed by former Reserve Bank of India (RBI) Deputy Governor, Shyamala Gopinath, the committee has suggested that the deposit limit under the PPF scheme be raised to Rs1 lakh per annum from Rs70,000. “The limit of Rs 1 lakh is never enough because it is plugged with every other tax savings instrument. So this is not going to increase the benefit much. The deduction amount itself has to be increased so that the benefit increases,” says Sandeep Shanbhag, director, Wonderland Consultants. It also suggest that interest rate on advances against deposits be fixed in PPF scheme at 2% against 1%. “In conjunction for the rise in limit for the demand to sustain, there should also be status quo on other benefits. For example, if they make the interest rate market linked, automatically some bit of allure is gone. If they remove the EEE benefit, the allure is reduced,” said Jayant Pai, vice president, Parag Parikh Financial Advisory Services. The committee is of the view that the interest rates on small savings schemes need to be market linked. Few financial planning support this.  “This makes the scheme sustainable. One of the big subsidy is that even the interest is tax free. Linking it to the market will be fair. Otherwise, it is unnecessarily creating a government handout during times when interest rates are low,” says Harsh Roongta, chief executive officer, Apnapaisa.com. Roongta agreed that increasing the limit will also benefit investments. The committee has further recommended benchmarking interest rate on small saving schemes to interest rate on government securities of similar maturities with a positive spread of 25 basis points on all schemes. The National Savings Certificate and Senior Citizens Savings Scheme would be exempted, where the spread would be 50 bps and 100 bps, respectively.

DNA