The Bihar Post

How FM’s idea of slashing interest rate may not prove good for Indian economy


Finance Minister Arun Jaitley recently dropped hints that the government may reduce rate of interest on savings to make available loans at cheaper rate to speed up the economy although loaning factor has been blamed for halting the Chinese economy.

In the exit of RBI Governor Raghuram Rajan, there appear the pressures from the FM to slash down the repo rate to make loans cheaper.

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Rajan of late hit back on the Subramanian “Swamiconomics’ by stating that price rise has not fallen down so as to encourage him to reduce the rate of interest on credits.

His cut on repo rates means lessening the rate of interest on savings that has been going down for the last three years.

The numbers of small savings account holders in banks are in millions who have invested their money in fixed deposits but their interest has not been taken into account by the union government.

In 2013 the banks were giving  nine per cent interest on fixed deposits for one year that came down to  8.50 per cent in 2014 to 8.10 per cent last year to an average 7.50  per cent per annum FD presently.

There has been a wide difference between the rate of interest a bank provides to its customers on  deposit and credits.

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A bank gives less interest on deposits but takes high interest on lending.

Moreover, there are differences among banks giving interest on FD. For one year fixed deposit, Canara Bank offers 7.75 per cent interest whereas Punjab National Bank gives 7.50 interest. HDFC gives 7.60 per cent.

Thus, banks in India are profiteering. Since it is a consumer market, customers take different types of  loan from banks ranging from home loan to business to education loan.

A capital invested in real estate or business creates chain of establishments based on loans in the market.

Customers even purchase cars on loans. Thus, the banks which were established for savings are now reduced to lending.

The country, thus, seems to be running on the principle of sage Charvak who enunciated, “Rinam kritvah ghritam pibet” (So long as you live, live a happy life, incur debt eat ghee, once the body turns into ashes after death, it won’t come back).

An economy based on credit financing generates only inflation.

(The views expressed are personal)

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