An unkind cut for senior citizens

An unkind cut for senior citizens: While focusing on small savings to improve monetary transmission, the income security aspect has been forgotten


As brought out in the article, there is an urgent need to have a re-look at the approach of GOI to small savings major portion of which form part of retirement savings of self-employed people and senior citizens. It is unfortunate that different pressure groups
argue for reducing rate of return on savings from different angles and GOI
succumb to such pressures without weighing the impact on social security cover
for which savers invest in most of the long term savings instruments like PPF
and various savings options offered under National Savings Schemes. The
combined corpus under such schemes constitute less than 10 per cent of the
deposits with banks.
Beyond tax savings, investors under these schemes look at their stable nature in regard to security of investments and regular assured returns. Considering their role in providing financial security for elders and acting as a source of liquidity when earnings
fluctuate in the present uncertain employment market, there is a strong case
for ensuring a rate of return on such investments, higher than that available
on bank deposits. The recent SBI research report suggestion to consider  differential (higher) rates for savings in the accounts of elders and in age-groups above 45 years is worth looking at.
Another group which may deserve differential treatment may be those who are not
investing in these instruments for income tax benefit (their income being low
and therefore not taxable).
A related issue is professionalism in management of funds flowing into governments’ kitty which now come from captive sources like LIC, EPFO, banks(SLR deposits), National Savings Schemes and PPF. As these funds are used by government and no
investment risk prevalent in money with the banking system is to be factored
in, it is natural that savers expect a higher rate of return on investment in
such financial instruments. Any thought of relating interest rates on
investments in such instruments with bank interests is irrational and therefore
If GOI still remain adamant on their present stance, the social security cost later, because of reduced savings by present savers and migration of savers to risk-prone financial instruments for immediate higher return, will be unbearably high.

M G Warrier, Mumbai


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