Sunday, June 28, 2009

Fwd: Budget Wish List- My wish and its rationale


Interest Rate on Small Savings (IRSS) should not be reduced

 

Rationale-

·         IRSS is lower than the Consumer Price Index affecting the poor and the middle-class the hardest.

 

·         Millions of savers, mostly middle-class people/pensioners/retirees, will be hit further if IRSS is reduced.

 

·         India does not have Social Security/Healthcare as in the developed countries. To sustain livelihood/meet medical emergencies, people will be forced to save more at lower rates, reducing consumption and economic growth.

 

·         Industry/a section of media oppose this as, low interest helps industries/real-estate developers/big businesses, etc. But they rarely reduce product-prices, even with such sops. Recently, the State-owned Airlines did not reduce fares when ATF-prices fell until the Ministry intervened.

 

·         Interest is only a minuscule component of cost of production. Industries should optimise overheads/travel/advertising/selling costs/remunerations/perquisites of top executives to remain competitive.

 

·         Even Forex loans become costly considering rate fluctuations/hedging costs.

 

·         Cheap money encourages profligacy as seen in the West. Japan is in deflation despite a near-zero interest rate for years. US is also witnessing deflation.

 

·         Low interest rate encourages speculation and inflates prices of assets.

 

·         However, agricultural/educational/low-cost housing/SME loans may be subsidised to sustain growth.

D.K.Basu, DGM, Basel-II Implementation,

SBI, Corporate Centre, Mumbai


"You cannot create time; so, manage it well".

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