Vehemently opposing trade unions' demand for hiking Employees Provident Fund rates to 12 per cent, India Inc on Friday said small savings and PF rates need to be trimmed in the Budget, as artificially high rates was discouraging investments.
Responding to a questionnaire sent by PTI, industry captains and economists have warned the government that high interest rates on some savings schemes was not sustainable and can have an adverse impact on the economy.
Most of the economists and industry chambers also mooted a "targeted subsidy" on a wide variety of pension and insurance products to provide a safety net to the poor.
"Deregulate the administered interest rate on small savings and provident funds as the present system is subsidising the middle class at the cost of the poor," Federation of Indian Chambers of Commerce and Industry said.
Confederation of Indian Industry said, "Interest rates in the economy are higher than they would otherwise have been. This has adverse effects on cost of borrowing and discourage investments."
Pointing out that providing guaranteed return to all savers is out of line with returns available elsewhere and hence not sustainable CII said, "This policy of keeping rates artificially high, can have serious macro-economic consequences and should be reconsidered."
Association of Indian Chambers of Commerce said, "Small savings rates should be brought down in line with falling inflation."
Credit rating agency ICRA said, "The interest rates on government papers are much lower than administered rates on provident funds and small savings, which are also perceived as risk free. Thus to continue with high rates on these debt instruments appears untenable."
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