India Reverses Small-Deposit Rate Cut Citing an ‘Oversight’

India rescinded an order to lower interest rates on some small saving plans within hours, in a move aimed at preventing widespread backlash from citizens at a time when the ruling party faces elections in key states.

Finance Minister Nirmala Sitharaman in a Twitter post said that there was an “oversight” that led to the rule change, which was issued Wednesday evening. As a result of the reversal, interest rates on standard small deposits in government programs will continue to fetch 4% during the April to June quarter, instead of the 3.5% planned.

The household sector contributes around 60% of gross savings in the Indian economy, making it a major supplier of financial resources for gross investment, according to the Reserve Bank of India. Interest rates on deposits have fallen, tracking the central bank’s benchmark rates that are at a record low.

The reversal in the government’s stand comes as Prime Minister Narendra Modi tries to knock out one of his biggest national political opponents -- Mamata Banerjee, chief minister of West Bengal. Banerjee’s constituency votes Thursday. The state elections end on April 29, with results due on May 2.

Modi’s Bharatiya Janata Party has expanded its footprint beyond strongholds in predominately Hindi-speaking regions of north and central India, and is now looking to wield its influence in new provinces in the country’s east and south.

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