Dinesh Kamath's Editorial 'Government should spare the common man' that was published in Newsband

Government should spare the common man

The Bharatiya Janata Party-led government has decided to act boldly and slash interest rates on several Centrally sponsored savings schemes. The decision will upset senior citizens, and the salaried middle class that forced the government to reconsider its decision to tax a portion of the Employees' Provident Fund (EPF) corpus upon withdrawal. And though the government finally abandoned the Budget 2016 proposal to tax EPF, it was a clear indicator of things to come.

The rate cut covers a broad spectrum of schemes, including the Public Provident Fund (PPF), the Kisan Vikas Patra (KVP) and the National Savings Certificates (NSC). Senior Citizens, who are not covered under any pension scheme, have to depend on the interest from these Small Saving Schemes for their day to day living. Government can at least consider exempting Senior Citizens from these rate cuts.

India needs a welfare state not elite state. The economists of the government must understand the real areas of loss of the government funds and should not attack the small purses of the common people. The sociology of common people needs to be taken care of. High level analyses are of no use at the ground level where common people operate.

The recent changes in the economic policies is having a direct adverse impact on the day to day life of the middle class. Their purchasing power is declining every year due to increase in cost of lower as well as higher education and other necessities of life. Hence the demand for consumer products are declining and they are compelled to over extend themselves by going in for consumer and higher educational loans under EMS or otherwise. Similarly SCS without any social security coverage are compelled to invest in SS Schemes to protect the principal amount and for regular receipt of interest income without any risk. They will be put to hardship in meeting their monthly commitments including ever increasing medical expenses. Let it be taxation - direct or indirect - or reduction in interest rates on deposits it is the middle class that is being hit. It seems the present day policies are directed against the welfare of the so called middle and lower middle class. It needs a change.

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. 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 unacceptable.