Editor's Pick: Electoral considerations outweigh economic ones

(The Editor's Pick is a new newsletter from The Hindu that provides a snapshot of the most important stories from today's edition of our newspaper, along with a note from our top editors on why we chose to give prominence to these stories.)

In a major flip flop, Finance Minister Nirmala Sitharaman announced that an earlier order cutting the interest rates on small saving instruments such as the post office term deposits and the Public Provident Fund, has been withdrawn. She said that the order had been issued due to an 'oversight'. The initial order had cut the returns on some schemes by up to 1.1 percentage points, and that of the popular PPF by .5 percentage points.

The government had not touched the small saving interest rates in the last three quarters. As per recommendations of the Shyamala Gopinath committee, the interest on these schemes have to be reviewed every quarter and are linked to the returns on government securities of similar tenure. While lowering interest rates affects those in the lower and middle classes who usually park money in these schemes, it smoothens the government's ability to borrow. And the government plans to borrow heavily this year — about ₹12.05 lakh crore — driven by an economy that has been hit hard by the pandemic. However, this also happens to be an elections year, where any action that affects the common man may affect the ruling party's prospects in the States that are going to the polls.

In all probability, the bureaucratic mechanism that does the quarterly review of interest rates proceeded with its calculations and issued the resultant orders before the political calculations kicked in. It appears as if the ruling BJP's electoral considerations outweighed the benefits to the government from the rate cuts, which can also happen in the next quarter, after the elections. The Hindu's editorial today points to this deviation from a routine decision-making process due to electoral considerations, which is also what makes this story important.

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