If there is one sector which has been hit most severely by the inflation, then that is the small savings schemes. However, the RBI’s move of a double hike, which as most experts believe, would lead to an increase in the deposit rate of banks, would worsen their problems. Investments in small savings schemes are already at a very low level. Not only have they slowed down, but now as bank deposit rates will rise, following the RBI move on Tuesday, their preference would decrease even further.

The latest figures state the sad story of the small saving schemes, with fresh mobilisations through small savings schemes dipping by 18% in 2007-08. It has decreased from Rs. 1,54,836 crore in FY07 to Rs 1,26,629 crore. The problem is that this fall has been seen almost across all schemes, including postal monthly income scheme (MIS), National Savings Certificates, Kisan Vikas Patra, among others.

However, that is not the main problem. The bigger problem is that the there is no incentive for investors to invest in these schemes. At present, these schemes give a constant return of about 8%. That coupled with the present inflation in the economy, which stands at 11%, means that the real return (adjusting after inflation) on these schemes is actually negative. No investor would invest in a scheme in which he is bound to lose his money, not when there are other attractive options being offered by the banks. These things have impacted depositors/savers’ interest in such schemes.

Even though the government did its bit to popularise these schemes by reintroducing bonus on postal MIS in December 2007, but it was met with a meek response. There has been an absence of incentives for anyone to invest in these schemes.