Savings

Modi Govt’s relentless attack on small economies; Lending rates go up, savings rates go down

Interest rates on small savings schemes, the only fallback option for ordinary people in India, have not been increased for a long time.

For a long time, Indian citizens saved part of their income by depositing it with the government through small savings schemes, in the hope that these would be useful to them in the future.

But since Prime Minister Narendra Modi came to power in 2014, the interest rates for these savings plans have been cut several times. For example, the Senior Citizen Savings Account Scheme used to earn interest at the rate of 9.3% in 2015. But, since 2015, the interest rates for this scheme have been reduced six times.

Currently, interest on this plan is available at the rate of 7.4%. Even though inflation rates are reaching new highs, there has been no increase in the postal savings account since December 2011.

The Kisan Vikas Patra program had an interest rate of 8.7% in 2014. This rate fell to 6.9% in 2020.

Interest on the public provident fund account scheme was 8.7% in 2013. It was reduced to 7.1% in 2020. (See chart below)

National Savings Recurring Deposit Account Scheme interest rates have been cut seven times in the past eight years. In 2014, the interest rate for this savings plan was 8.4%. This figure has dropped to 5.8% in 2020.

In 2013, the National Savings Certificate Scheme remuneration was 8.5%. This figure has been reduced to 6.8% in 2020.

Under the National Savings Time Deposit Account Scheme, interest was charged at the rate of 8.4% on one-year, two-year and three-year deposits in 2014 and 8.5% on five-year deposits. In 2020, rates were reduced to 5.5% on one-, two- and three-year deposits and 6.7% on five-year deposits.

That’s not all. The National Savings Monthly Income Account Scheme interest rate was 7.8% in 2016. It has been cut six times over the past five years. At present, this plan gives an interest rate of only 6.6%. (See graph below)

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It makes no sense to grant such low interest rates of 6% to 7% to such small savings plans, because if we look at the inflation rates for the past few years, the average inflation rate for the past eight years has been close to 5%.

This means that the interest rate on money deposited by people in these savings schemes is close to or lower than the average rate of inflation.

Simply put, the interest earned on small savings plans is hardly a gain to the depositor in real terms. In short, with the “earned” money, people will be able to purchase the same number of goods and services that they could have purchased when they actually deposited their funds into these schemes.

Basically, people no longer have any incentive to invest in these little savings plans.

The inflation rate between July 2014 and June 2015 stood at 5.27%, while between July 2021 and June 2022 it rose to 5.93%. (See table below)

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The inflation rate remains high in the double digits in the country although a slight moderation was seen in June. Inflation based on the wholesale price index fell from 15.88% to 15.18% in June, while retail inflation (based on the consumer price index) fell slightly, from 7.04% in May to 7.01% = in June.

But, this decline is so marginal that there is no relief for ordinary people. At the same time, due to the increase in unemployment in the country, the economic situation of the population has further weakened.

Currently, the unemployment rate in the country has increased to 7.8%. In June, a staggering 1.3 million people reportedly lost their jobs, according to data from the Center for Monitoring Indian Economy pr CMIE.

Read also : Why were 1.3 crore jobs lost in June?

To contain inflation, the Reserve Bank of India had raised the repo rate (repurchase rate or rate at which the central bank lends money to commercial banks) by 0.90 basis points.

As a result, bank interest rates rose, which, in turn, did not provide much inflation relief for ordinary people, as the additional burden of debt (housing loans, EMIs, etc.) risen on the shoulders of the public.

The Modi government, which has presided over hundreds of thousands of dollars in bank write-offs for big business, must raise interest rates on small economies to provide much-needed relief to ordinary people who are crushed by rising prices and unemployment.

(Translated from Hindi by Aditi Nigam)