Government says not closing 8% bond scheme, replacing it with 7.75%

Rejecting the reports that the subscription for the eight percent Savings Bonds Scheme will be closed on Tuesday, the Economic Affairs Secretary Subhash Chandra Garg on Tuesday said the government will not end the existing scheme but replace it with 7.75 percent Savings Bonds Scheme. “8 percent Savings Bonds Scheme, also known as RBI Bonds Scheme, is not being closed. 8 percent Scheme is being replaced by 7.75 percent Savings Bonds Scheme,” Garg posted on Twitter. The Finance Ministry on Monday had said it will close subscription of eight percent Government Savings (Taxable) Bonds, 2003, with effect from Tuesday. In 2003, the government came out with bonds offering 8 percent interest to encourage retail investors to invest. The bond was open for subscription April 21, 2003, and had a fixed tenure of 6 years. There was no upper limit for investment. “The Government of India (GoI) announced here today that 8% GOI Savings (Taxable) Bonds, 2003 shall cease for subscription with effect from the close of banking business on January 2, 2018,” the Finance Ministry had said in a statement. The reason behind the decision to discontinue the bond was declining interest rate in other saving instruments, especially the Post Office small saving schemes. In December last year, the finance ministry had reduced interest rate on various small saving schemes by 0.2 percent. Following the reduction, term deposits of 1-5 years will fetch a lower interest rate of 6.6-7.4 percent, to be paid quarterly, while the five-year recurring deposit interest is pegged at 6.9 percent.

The government decision in December last year to borrow an additional Rs 50,000 crore through dated securities this fiscal while trimming receipts via treasury bills by Rs 61,203 crore between now and March 2018 stoked concerns about a flare-up of bond yields. The Centre’s fiscal deficit in the April-October period of the current fiscal touched Rs 5.25 lakh crore, or 96.1% of the budgeted target for the current fiscal. While a front-loading of allocation was done in the wake of an advancement of the Budget date by a month, the high deficit level poses risks to the fiscal maths in view of a sequential fall in GST collections and economic growth below par despite a sequential rise of GDP growth by 60 basis points in Q2FY18 to 6.3% from a three-year low in the previous quarter.