The government does not plan to change interest rates and is concerned about falling rates for pensioners, the country's senior-most financial bureaucrat said on Wednesday.
Finance Secretary S Narayan's comments came a day after the government said in a Mid-year Economic Review that there was a need to revise interest rates on small savings schemes in line with movements in market-related rates.
"Yes, interest rates are on a downward path as reflected by falling bond yields," Finance Secretary S. Narayan told reporters. "We are not disturbing interest rates today."
"Yes, we are concerned about the fall in rates for the old and disadvantaged and pensioners. But we have provided some friendly instruments like the 7.0 per cent tax-free bond. What the future of course of action will be we can't say."
The country's central bank cut its benchmark bank rate by a quarter percentage point to 6.25 per cent at the end of October and overall rates in the economy are declining.
Earlier this year, the government cut rates on small savings schemes, leading to political uproar and protests from salaried people and pensioners who depend on such schemes.
Analysts say Wednesday's announcement was aimed at winning over the middle class -- the ruling Bharatiya Janata Party's main support base -- ahead of key elections in Gujarat and state assembly elections next year.
The finance secretary's comments pushed up bond yields. The benchmark 10-year bond was dealt at 6.3674 per cent, up from the day's low of 6.3496. The stock closed at 6.3827 on Tuesday.
Yields were also up after the country's largest state-run pension fund said it would retain the 9.5 per cent rate offered on its scheme, ignoring a finance ministry plea to lower the rate.
"The market had recovered a bit earlier today but this news combined with the finance secretary's comments are bound to dampen sentiment a bit and we could see prices easing further," a trader at a state-run bank said.
Narayan also said the government did not plan to cut farm subsidies.
The government said in the economic review that in order to check spending it was necessary to address the issue of food, fertiliser and fuel subsidies which had gone up in the first half of the year after the country's worst drought in 15 years.
Farm subsidies in India are another politically sensitive issue and any move to cut such subsidies is expected to be opposed by strong lobbies of farmers and political groups.