This refers to the report “Jaitley questions high interest rates on savings” (The Hindu, July 10). As the occasion was a function at which the majority of the audience must have been stakeholders in equity market, a reasonable bias in FM’s speech to promote non-cash savings is understandable. But the questions raised by him need to be answered.
Jaitley is right when he says that a substantial portion of India’s domestic savings that get converted as deposits in banks and post offices which also include savings mobilised by GOI via PPF, National Savings Schemes, EPF and similar routes. A part of these get back into GOI’s resources for investment through government’s market borrowing route which is sustained by statutory provisions (e.g. SLR deposits of banks).
Interest is the rent on the cash savings the saver gets. As the original investment does not appreciate in value as in the case of investment in real estate or gold, the depreciation in value also need to be factored in in the interest rate. Simply put, the depositor is entitled for a positive interest rate, net of inflation. It is easy to confuse common man by comparing interest rates in India with those prevailing in countries where inflation is low or ‘negative’.
The finance minister’s reference to ‘pension funds’ and equity market as an alternative avenue for savers to invest their funds makes a valid point. For that retail investors’ trust has to be built up by making available investor-friendly financial instruments. Small savers in India are more aware of the risks involved in investments in equity market. Incidentally, government is yet to move towards a dependable retail market for its own offerings and GOI’s own organisations like EPFO are not allowed to invest in equity market freely. GOI’s fund management leaves much to be desired.
M G Warrier, Mumbai


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