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The State Bank of India’s economic research team has advocated parity in interest rates offered to subscribers of the government-run Employee Provident Fund (EPF), which is open only to salaried employees, and its Public Provident Fund (PPF) service, to which anyone can apply and use as an account to put money away for retirement or any unforeseen expense. In a country where so few have pensions, old-age expenses are projected to rise, and health emergencies are getting more frequent and costly, both, the importance of this cannot be over-emphasized.

Such a move would be fair. A key purpose of PPF is to offer a social security cover to those who are not on formal payrolls and do not have the standard retiral benefits of their counterparts working in the organized sector. Yet, the rate of interest offered on PPF savings has been linked to market levels, resulting in their steady decline (to 7.1% currently) and widening the gap with what EPF account-holders get (8.5% as last declared). While EPF is compulsory for employees and PPF is voluntary, which may justify a slight gap, most PPF savers are more vulnerable and deserve a better deal.

Convergence is in order. Crucially, this ought to be done by lifting PPF rates to the EPF level, not the other way round. With inflation elevated and threatening to rise, long-term savers need rates of interest that are comfortably positive. If the interest paid is less than the rate at which the rupee loses its purchasing power, then savers end up with shrunken deposits in real terms. Bank depositors can bear this if it's just for short periods, but all retirement savers should be spared such financial repression, and by at least 3 percentage points. The irony is, raising the PPF rate could draw money away from banks.

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