Last Updated on February 20, 2026 at 10:58 am
A provided fund for the general public came into being by an act of parliament in “in the nineteenth Year of the Republic of India” (1968) and has since evolved with the Indian economy. In this post, let us consider the way in which the interest rates of the public provident fund (PPF) has changed since inception. The PPF ACT 1968
The idea is to understand the factors (at least a couple of them) that affect the interest rate so that we can react to future rate changes with better perspective.
The way PPF interest was/is determined
It is such a pity that I am not able to find an authoritative source on how the PPF interest rate was set before 1998!
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
Since 1991 the government had constituted committees from time to review small savings schemes and recommend interest benchmarks.
The first such committee in 1991 chaired by Dr Rangarajan only said
The existing pattern of administering Small Saving Schemes may continue.
The second committee chaired by R V Gupta (1998) noted
The rate of interest on PPF would be set at par with the rate of interest on GPF.
Reddy Committee (2001)
Yearly average secondary market yield on G-secs of comparable maturity as the appropriate benchmark with a positive spread of up to 50 bps depending on the maturity and liquidity of the instrument. Periodicity of revision to be on annual basis.
The Rakesh Mohan Committee (2004) suggest a more elaborate formula based on the above lines.
The money collected under small savings schemes goes to the National Smal Savings Fund. From here, the Central government lends money to the states for different durations. The interest of these loans was anywhere between 2-3% higher than the interest of the small savings schemes (of which PPF is one)!!
Thus, the cost of borrowing from the centre is much higher than the cost of borrowing directly from citizens. The Rakesh Mohan committee noted that unless this spread of 2-3% is not lowered by benchmarking the small saving schemes to government bonds, the states cannot handle the fiscal strain.
Broadly speaking this is the reason why interest rates are now fixed each quarter. The 0.5% extra interest wrt the GOI bonds has come down to 0-0.5% depending on the scheme.
The quarterly reset was recommended by the Shyamala Gopinath committee in 2011, who also agree with the previous two committees,
secondary market yields on Central government securities of comparable maturities should be the benchmarks for the various small savings instruments
PPF Interest History
Even though the exact interest calculation method before 1998 is not known and only 2001 benchmarking with G-secs began, it is not a bad approximation to assume the PPF rate evolves the same way as the 10-Y G-sec yield.
There are main factors that drive bond yields – inflation and credit worthiness. In the case of PPF, economic drivers like fiscal deficit, corporate earnings should also determine the attractiveness of small savings schemes. I wish I can write with more authority on this, but I am only a student of this exceedingly interesting subject: The history of the Indian Financial System. (page 331)
Sources:
- The PPF rule book from nsiindia.gov.in
- Historic inflation India – CPI inflation
Notice that the PPF rate has steadily increased since inception up to 1990, remained flat at an astonishing 12%, fell down sharply to a plateau at 8% and then reacted to inflation.
The sharp increase in from 5.8% to 7% in 1974 was most likely triggered by the four-fold increase oil prices due to an embargo triggered by Americal aid to Israel. Read more: 1973 oil crisis
After the inception, we have had the Bangladeshi liberation war (1971), the emergency (75-77) and Indias worst economic crisis ever – balance of payments crisis (Mid 80s- early 90s): 1991 Indian economic crisis
- A set of interesting charts about the crisis
- A good essay: Balance of Payments Position of India
India was importing more than it was exporting. It had no forex reserves and it was on the verge of defaulting on payments. The IMF lent Indian 2 Billion USD with its gold reserve as collateral. The economy was opened up and the great Indian story was all set to begin … with a big hiccup.
As a result of the economic crisis, Indians credit worthiness failed. It is due to this, coupled by the need for increasing borrowing, the PPF rate shot up to 12%.
Why it remained there at 12% for a decade is a mystery to me. The initial half of the 90s was spent in consolidation of forex reserves. Meanwhile, another story was unfolding – The Harshad Mehta scandal. A decade after this, the Sensex was flat – our very own lost decade (like Japan). Although inflation was not alarming, perhaps because of lack of productivity, the interest rates were quite high in the late 90s too. I am still searching for confirmation on this.
In the early 2000s the situation improved. Inflation fell sharply ~ 5-6%. The govt dramatically dropped interest rates and the great Indian bull run began. Debt funds gave 15-17% returns because of the rate cut!!
Inflation increased gradually and probably healthily as the market reached all-time highs (then). Soon came the 2008 crisis, recession, inflation and the now the rates have started to fall again.
Could this be the start of another bull run? Let us hope so. When the PPF rate was decreased by 0.6% there was an ‘outcry’. Let us look back at history and recognise that we are a slave to the economic machinery. Much larger changes have taken place before … when there was no social media!
A high PPF rate does not always mean things are rosy!
Reference: EPF Interest Rate History The EPF (and GPF) rates have followed PPF rates closely. Typically the EPF rate has been about 0.5% on average higher than the PPF.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News.
Explore 1,400+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥- Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
- Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
- Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle.
- Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
- Portfolio Tracker! Track your mutual funds and stock investments with our Google Sheet!
- We also publish monthly screeners for
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! On Audible: Listen to the Let's Get Rich with Pattu Podcast
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
- Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras.
- He has over 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
- He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
- Connect with him via @pattufreefincal on X LinkedIn YouTube
- Pattabiraman has co-authored three print books.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
- Your Ultimate Guide to Travel. This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
- How to profit from content writing: Our ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!