The recent cut in interest rate by 0.5 per cent is anti-poor. Depositors will suffer a severe erosion not only in their earnings, but also in their deposit values. It will be in the nation’s interest to keep the interest rate at nine per cent
The recent move by the Reserve Bank of India to cut interest rate by 0.50 per cent will give a severe blow to the depositors. It will also not benefit the borrowers for home, cars, other consumer loans and the farmers. The only beneficiary of this rate cut will be large groups.
According to a parliamentary study, 30 groups have gobbled up the largest unpaid loans from public sector banks that has soared the non-performing assets to over three lakh crore rupees. Defaulters are being rewarded and they are the largest gainers. They will be pay less for their misdeeds!
Contrast this with an honest depositor, average householder, a pensioner and other salaried class people. They will be at the losing end. Deposit rate cuts have hit them hard since the past one year. They have individually lost thousands of rupees and cumulatively trillions.
In real terms, it is a double whammy. Their annual accrual has reduced. Inflation has gone down only in statistics, prices have been rising continuously. Depositors are suffering severe erosion not only in their earnings, but also in their deposit values. It is the poorer class who has been bearing the brunt.
Of the 68.4 crore savings accounts in banks, over 90 per cent of them belong to the low-earning categories. They have been suffering the worst, owing to inflation and tax on their deposits — interest earnings.
The income tax extractors forget that interest is not an earning, but a mere instrument to protect the value of deposits against marauding erosion due to rising prices. In other words, the value of deposits is coming down every year. The nation is creating a new kind of deprived class.
The poor are being penalised for being honest depositors, who keep their money in the banks and depend solely on the interest earnings. Rate cuts will only shake their confidence in the system. With returns getting squeezed, depositors will be tempted to be little adventurous. This will have tragic result, as the Saradha chit fund scam has shown.
A rate cut at this stage is dangerous. According to latest figures, India has only six crore high net worth individuals. What is the high net worthIJ It is a mere `60 lakh of assets that the poor hold in bank deposits, a house and other sundry instruments. With that token, anybody having a two-bedroom apartment in Delhi or any metro city, qualifies to be a HNI. This is how the country is progressing.
Unfortunately, the Modi Government is being misled by the rules set by previous regimes, or maybe it is groping for new standards. The NDA Government enjoys the trust of the people. It has to sit with divergent groups, employees, employers, pensioners, small industries, farmers, housewives, industrialists and political players to devise a new set of economic parameters. The jargons of the past have to be buried and a realistic set of standards has to be devised. The National Institution for Transforming India Aayog can start this process.
Now, let us examine how rate cuts are not beneficial for the borrowers for home, cars or consumer loans. Taking an example, a person has taken a loan of `40 lakh to buy a flat. His monthly EMI will be around `40,000. A 0.4 per cent rate cut will save him a miniscule amount. Will this really benefit himIJ In fact, if the losses on the deposit earnings are included, they will end up paying much more than his so-called fall in EMIs. This also applies to the farmers. A farmer suffers heavy losses on his meagre deposits and lending rate for him remains unchanged at around seven per cent.
This is certainly not good economics. Falling interest rates on bank deposits raises livelihood concerns for those having no other means of support. Even for those who do not face an immediate threat — such as those who are employed, falling deposit interest rate is a concern. A financial crunch post-retirement is dreadful and will affect the retired life, including escalating medicare and rental costs, if one does not own a house.
It seems, the weaker have lost the voice in the decision-making process. There was not a whimper of support for those who want to maintain the status quo in deposit rates. In fact, a deposit rate of less than nine per cent means an erosion in value.
Powerful lobbies and chambers, prevail upon the decision makers to rob the poor people.
So, this is an alarming bell. Poor people do matter. If they are ignored, they have the capacity to impoverish all. The policy makers do not understand this. So they are planning to tax them more by levying charges for garbage collection, increasing tolls, parking charges or railway fares. Banks have also raised their charges. Higher taxes on any pretext are dangerous for our delicate economy.
If the nation wants real growth, it has to look for field-level solutions. If the Government or the RBI is so keen on reducing lending rates for the defaulter industrial houses, it should ask its officials to pay for it. Robbing people’s deposits to subsidise the rich is not a solution. This can lead to a volatile social and economic situation. Deposit rates must be at a minimum of nine per cent.