Economic Highlights
New Delhi, 3 October 2015
RBI Rate Cut
RICH GAIN, POOR LOSE
By Shivaji Sarkar
The excitement over the Reserve Bank of India’s 0.5 per
cent interest rate cut taken as a whole is misplaced. It is a severe blow to
depositors. Additionally it will also not benefit borrowers for home, automobile,
other consumer loans and the farmers. The only beneficiary may be the large groups,
who have every reason to be happy.
According to a parliamentary study, 30 groups have gobbled
up the largest unpaid loans from public sector banks (PSBs) that has soared the
non-performing assets (NPAs) to over Rs 3 lakh crore. The defaulters are being
rewarded and are the largest gainers. They would be paying less for their
misdeeds!
Contrast it with the honest depositors, including the
poorest one in the Jan Dhan Yojana category, average householders, pensioners
and all other salaried class. They would be the largest losers. During the last
one year deposit rate cuts have hit them hard. 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 are rising
continually. They are suffering severe erosion not only in the earnings but
also in their deposit values. The poorer classes are bearing the worst brunt.
Of the 68.4 crore savings accounts in banks, over 90 per
cent belong to the low-earning categories. It is they who 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. Inflation has become statistical
jugglery while price rise is reality that is hitting every Indian hard. In
other words, value of deposits is coming down every year. The nation is
creating a new kind of deprived class.
These poor individuals are being penalized for being honest
depositors, who keep their money in banks and depend solely on interest
earnings. The rate cut is shaking their confidence in the system. With returns
getting squeezed there will be a temptation to be a little adventurous. This
has had tragic results as repeated scams, Saradha et al show.
The rate cut at this stage is dangerous. According to latest
figures, India
has only six crore high net worth individuals (HNI). What is the high net
worth? It is a mere Rs 60 lakh of assets that they hold in bank deposits, a
house and other sundry instruments. By that token possibly anybody having a
two-bedroom apartment in Delhi
or any metro qualifies to be a HNI. This exposes the claims that the country is
progressing.
The country men did not progress during the previous
regimes. The present regime unfortunately is being misguided by the rules set
by the previous anti-people regimes or may be it is groping for the new
standards. The NDA government still enjoys the trust of the people. It has to sit
with the 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 have to be devised. Let NITI Ayog start the process.
Let us examine how it is not benefitting borrowers for home,
cars or consumer loans. Say one has taken loan of Rs 40 lakh for a flat. His
monthly EMI is around Rs 40,000. A 0.4 percent cut saves him a miniscule
amount. So it is for any other borrowings. Would it be really benefitting them?
In fact, if the losses on their deposit earnings are included, these would end
up paying much more than their so called fall in EMIs. It also applies to the
kisan. He also suffers heavy losses on his meager deposits and the lending rate
for him remains unchanged at around 7 per cent.
It is certainly not good economics. Falling interest rates
on bank deposits raises livelihood concerns for those having no other means to
support them. Even for those who do not face an immediate threat — such as
those who are in employment now — falling deposit interest rates is a concern.
A financial crunch post-retirement is dreadful and is to affect the retired
life, including escalating medicare and rental costs, if one does not own a
house.
The weakest seems to have lost the voice in democratic
decision making. 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
9 per cent means erosion on value. But powerful lobbies and chambers of prevail
upon the decision makers to force the poor subsidise the richest.
It is just not a matter restricted to individual benefits.
Manufacturing hits a seven-month low growth in September. The Nikkei
manufacturing purchasing managers’ index (PMI) compiled by Market fell to 51.2
in September, from 52.3 in August. These indicate that the demand is falling in
the market because the so called HNI do not have money to spare and go for
purchases in the market.
That’s the alarm bell. The poor people matter. Ignore them
and 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 as Railway Minister
Suresh Prabhu says through a fare regulatory system. Banks have also raised
their charges. Higher taxes on any pretext are dangerous for this 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. Rather
it can lead to a volatile social and economic situation. The best solution
would be to keep the deposit rates at a minimum of nine per cent. Lending rates
can be pegged at a minimum of 10 per cent. Let the rich thrive but not at the
cost of the poor else a US-type sub-prime crisis in India would not be far-off.--- INFA
(Copyright,
India News and Feature Alliance)
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