India, New Delhi and Mumbai: The new government at the Centre, in keeping with its promise to provide interest sops to pensioners, will go ahead with the launch of the dada-dadi bonds.

The Rakesh Mohan committee on small savings, which has finalised its recommendations on the features of the dada-dadi bonds, will present it to the new government shortly. The panel is understood to have recommended rationalisation of small savings schemes . 

It has not provided any fresh road map on the tax treatment of these instruments as this has already been dealt with by the YV Reddy committee on small savings and the Kelkar committee on direct taxes. 

Former finance minister Jaswant Singh had given an assurance that the dada-dadi bonds for senior citizens (those above 60 years) will carry an interest higher than the prevailing rate of interest. 

If the interest rate on these bonds are benchmarked against the current interest rate of 8% on most small savings instruments, including the PPF, it could create distortions. But the government could always justify the provision of sops to a small segment. 

The new government may also consider providing greater flexibility in terms of exit options, by offering premature encashment and making the bonds transferable. Premature encashment, for instance, is not available for the 8% taxable savings bonds which can be redeemed only after six years. 

A key suggestion by the Rakesh Mohan panel was the criteria for fixing the spreads on administered interest rates over the benchmark yields recommended by the YV Reddy panel on small savings, in order to avoid excess volatility in returns. 

The Congress party has also been talking about protecting the interests of depositors. "Depositors get knocked when interest rates are aggressively tinkered with. So the setting of administered interest rates has to balance the prevalent interests rates in this segment," said a senior Congress party functionary. 

Depositor interest in small savings instruments - particularly the post office monthly income scheme - has led to a surge in collections. According to latest estimates, gross small savings collections posted a 26% growth to top Rs 1,47,600 crore in '03-04 compared to the revised estimates of Rs 1,45,000 crore. Net collections after redemptions were marginally lower at Rs 69,700 crore compared to the revised estimate of Rs 70,900 crore. 

Glossary: 

Dada- Grandfather in Hindi 
Dadi- Grandmother in Hindi