Govt scraps 8% GoI saving bonds

After reducing interest rates periodically on small savings/fixed deposits, the government announced discontinuation of the '8% GoI Saving Bonds', a lifeline for salaried class and retired citizens.

These bonds will cease from Tuesday, January 2, the finance ministry said in a one-line communiqué without elaborating.

Introduced in 2003, the 8% GoI Saving Bonds had become popular among the fixed-income class since last year when the government started lowering interest rates on fixed deposit small saving instruments like public provident fund, post office deposits, Kisan Vikas Patras and others.

As the name suggests, the bonds gave a fixed interest of 8% against small savings and time deposits, the rates on which were market-determined.

An estimated Rs 1,500 to Rs 2,000 crore was being deposited in these bonds every month and empirical data suggests that most of the fixed deposit customers had moved into the 8% GoI Bonds after April last year when the government started effecting cuts in small savings.

The minimum limit of investment in the GoI 8% Bonds was Rs 1,000 and there was no upper limit but the investment had to be in multiples of Rs 1,000. The tenure of the bonds was six years and the interest income from them was chargeable as per one's tax slab.

Individuals, Hindu undivided family, eligible charitable institutions and minors with guardians were eligible to invest in the 8% GoI Saving Bonds but not non-resident Indians.

Within minutes of the announcement, former finance minister P Chidambaram demanded an explanation from the government on why it took such a step, which he said was anti-middle class, anti-senior citizens.

"GoI 8% taxable bonds have been the safe harbour of the middle class, especially retirees and senior citizens, since 2003. Government has taken away their only safety net," Chidambaram said in a series of tweets.

"Is Government pushing people into the stock market and mutual funds? For whose benefit? Government has a duty to explain," he said.