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
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