Rich gain, poor lose

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

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 penalised 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 countrymen 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.

By Shivaji Sarkar