Atrocious attack on small savings 

Close on the heels of government bowing to public pressure reversing its ill conceived move to tax the EPF withdrawals , comes another pernicious attack on small savings. Much to the chagrin of the common man, the government decided to slash interest rates on a host of small saving schemes that primarily benefit the average Indian.

The government that could not prevent the lavish life style king from leaving the nation turning over Rs 9000 crore of public money deposited in public sector banks into Non Performing Assets, delivers a lethal blow on the incomes of ordinary Indians in the name of ensuring profitability of banks.

The purported move to cut interest rates on small savings is a conspiracy to channelise the people’s savings into highly volatile and speculative capital market. Small savings are the hard earned money of the working millions who have no capacity to withstand financial shocks. Exposing them to rapacious market forces erodes their social security. The fate of the American working class in the wake of global recession illustrates this point beyond doubt.

Even the Sukanya Samridhhi Account was not spared revealing the fallacy of government’s claim of promoting the girl child. The government’s scheme does not even make macro economic sense. Indian economy could largely be insulated from the contagion effect of global recession precisely because of strong domestic saving rate that ensured equally strong domestic investment rate.

Household savings account for a lion’s share of India’s domestic savings which always protected the domestic economy when the butterfly capital left even at a slight hint of adverse sentiment. Many small saving instruments have a specific purpose besides being a deposit scheme. For instance, the Sukanya Samridhhi Account is aimed at protecting the girl child in an era of falling child sex ratio.

How can such instruments be equated with bank deposits or government securities for deciding interest rates?
Though Finance Minister Jaitley wants us to believe, the reduction in interest rates on small savings is not a routine exercise. The corporate elite of India want cheaper funds. Hence, they call for lowering interest rates on deposits. Banks complain that they could not do so as they have to compete with small savings instruments yielding higher rate of interest.

So the attack on small savings. But, the critical aspect missed in this obnoxious market logic is that small savings are not just fiscal instruments. They offer income and social security for the working millions who have little or no assets to fall back. The provident Fund is a classic example of this. The corporate vitality cannot be sustained by weakening the incomes and savings of common man who primarily contributes to the domestic demand and domestic savings.

In fact, the government is the chief beneficiary of the fiscal resources mopped up through small savings. At a time when there is a greater imperative to boost public investment to deliver growth impulses to incipient economy, such a move would deprive government of a fertile source of funds. Neither a market phobia nor a mania should determine public policy especially in the financial system which is still largely inaccessible to the average Indian.