Interest rates on small savings schemes have given a raw deal to the middle-class. It’s time the Government ensures that lending rates are set high so that the unscrupulous do not take advantage of cheap money
Savings are being disincentivised and loot of public money is being condoned and incentivised. lower interest rates on deposits are a direct invitation to the loot by the biggest. Indian banks are following the Western pattern of robbing the poor to pay the rich. It is bad economics and unfortunately, the Economic Survey advocates it a prescription to the ruination.
The decision to cut interest rates on Public Provident Fund, National Savings Certificates and Kisan Vikas Patra is politically harmful for the ruling combine. Moreover, economically, it is to set a pattern of downward rolling. These instruments have been funding Government coffers to carry out development.
It hits the largest section of the lower middle-class which is supposed to be the engine of growth. Ironically, the middle-class ones are the supporters who replaced the political structure in 2014. They counted on the slogans of low taxes and believed the political masters will protect their interests.
A Reserve Bank of India report says, “The gross domestic savings rate as per central statistics office’s estimates declined to 30.1 per cent in 2013 from 31.3 per cent in 2012, and a peak of 38.1 percent in 2008, mainly on account of a decline in the rate of household physical savings. The savings rate dipped to the lowest in the past nine years and has accentuated the macroeconomic imbalances. The household savings rate generally hovered around 23 per cent since 2004.”
International Monetary Fund’s World Economic Outlook forecasts a slowly rising gross domestic growth rate for India till 2020, from 7.3 per cent to 7.7 per cent, but it says both savings and investment rates, as a percentage of GDP, will be even lower than in 2014. The investment rate, for instance, was 31.6 per cent of GDP in 2014 and is supposed fall to 30.59 per cent in 2017, and then huff and puff its way up to 31.1 per cent of GDP by 2020.
Tax rates are the highest in this country. Anybody, even a ‘beggar’, pays a minimum 40 per cent indirect taxes to the Centre and to the States. The plethora of taxes up to the municipal level are not included in the Survey calculations. The Goods and Services Tax Bill, if enacted, will add a minimum of another six per cent to these taxes.
Does it justify having a high direct income tax and force people to undergo several kinds of leviesIJ Policy-makers need to review the entire tax structure and deposit interest regime to take the country to fasten growth rate.
Since the presentation of 1992 Budget by the then Finance Minister Manmohan Singh, an illusion was created that the stock market is the ultimate answer to savings. It proved wrong in days with the busting of the Harshad Mehta scam, apparently supported by some large corporates. The route then also was simple surreptitiously divert bank funds.
Twenty-five years of Manmohanomics did little to protect the banks that thrive on poor man’s savings. Pretensions of linking deposit rates to inflation largely when it is on the lower side were only to keep interest rates low to help those who could swindle it.
The Harshad Mehta scam that cost about `93,000 crore to `98,000 crore to the banks was followed by fodder scam, Jharkhand Mukti Morcha bribery scandal, several mining scams including the Bellary mining scam, the 2G Spectrum scam, the UTI Scam, the lIC scam, Mercantile bank scam, the 2010 Commonwealth Games scam, Taj Heritage Corridor and Satyam scam. Th list is endless and leaves no sector.
By trying to force low lending rates, the country is only trying to reward those who hit the soft funding belly. This is what the NN Vohra committee in 1993 had said commenting on the “activities of crime syndicates/mafia organisations which had developed links with and were being protected by Government official and politicians”.
The modus operandi is simple: Get a large loan, default on payment, negotiate for waiving of interest payments, again default and vanish. The poor man loses, not only his principal, his interest accruals it is not his income, pays higher bank charges and ultimate dream of a better life.
It is a worrying trend. It shakes people’s confidence. This Government should take steps to reverse this process. It has to protect the banking sector. These cannot be ‘re-capitilised’ endlessly with the taxpayers’ money. The Government has to ensure that lending rates are set high so that the unscrupulous and particularly those having large reserves are prevented from taking advantage of the cheap money.
The move would be a deterrent. The corporates should be forced to take the bond and equity route for funding. If the banks are not protected and household savings are not encouraged, the country may move to an abyss as indicated by the IMF. Macro-economic imbalances are at a high and need to be corrected.