Squeezing the small saver

Squeezing the small saver: It is illogical to force retail savers to take on market risks, while domestic institutions stick to the safety of guaranteed returns

February 13, 2016
Save the small saver

The excellent analysis of the availability of financial instruments for small savers with long term perspective and the reluctance of institutional investors to move to equity market by Aarati Krishnan (The Hindu Business Line, Squeezing the small saver, February 13) should be an eye-opener for policy makers in Delhi who are playing ‘blow hot, blow cold’ when it comes to investment opportunities and rates of return on retail investor’s savings. Centre and institutional investors including banks have a ‘heads you win, tails I lose’ approach to mobilisation and deployment of resources from small savers. Low income group employees are encouraged to ‘invest’ in NPS and make choices from different types of options for deploying their savings in equity and G-Sec. At the same time, government keeps captive sources like SLR (banks) and funds with public sector organisations like LIC for selling government securities or even when divestment of PSU shares is thought of. There is no evidence of effort on the part of government to (a) develop a retail market for G-Sec or (b) make return on G-Sec market-related.
The following initiatives need to be seen in the context of the analysis in this article:
(i)               Succumbing to pressure from banks to reduce the interest rates on small          savings schemes.
(ii)    Proposal to discontinue employees’ contribution (by low income group employees) to EPF reported in the media.
(iii)      Not compensating NPS beneficiaries for the loss they suffer vis a vis those covered by Defined Benefit Pension Scheme and on account of market fluctuations (as their contribution to NPS is invested in equity market).
In the absence of social security schemes in India, comparable with those available in developed countries, the present moves to squeeze small savers will have long term adverse impact on the economy, which, future governments will find tough to manage. In this context, the observations in the three concluding paragraphs are of utmost significance.
M G Warrier, Mumbai


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