Read Editorial with D2G Ep – LXVII

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EPISODE – LXVII
TOPIC:
No small trouble
BLOG: The Indian Express
WRITER: The Editorial
GENRE: Editorial

editorialnew

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D2G wears no responsibility of the views published here by the respective Author. This Editorial is used here for Study Purpose. Students are advised to learn the word-meaning, The Art of Writing Skills and understand the crux of this Editorial.

MEANINGS are given in BOLD and ITALIC

Even as RBI Governor Raghuram Rajan is set to present his next bi-monthly monetary policy review early next week, there is increased focus on what is to be done with the interest rates on small savings instruments like the public provident fund (PPF), the national saving certificate or the new Sukanya Samriddhi Account Scheme (SSAS). Currently, there’s a significant gap between the rates paid on these — ranging from 8.7 per cent for PPF and 9.2 per cent for SSAS — and the 7-7.5 per cent banks give on deposits or the 7.8 per cent yields on 10-year government bonds. The economic case to align the administered rates on small savings with the rates prevailing in the market is obvious. Such a gap essentially incentivises (motivate or encourage (someone) to do something; provide with an incentive) people to put their money in the small savings instruments, while making it difficult for banks to reduce deposit rates and, in turn, lower lending rates that are much needed in the current investment-starved (If a person or thing is starved of something that they need, they are suffering because they are not getting enough of it)economic environment.

Over the last year, the RBI has cut its policy rates by 125 basis points, whereas banks have on average reduced their lending rates by just half of that. Economists are not wrong in pointing out that the high administered rates for small savings — in relation to both market rates and CPI inflation — act as effective impediments (Something that is an impediment to a person or thing makes their movement, development, or progress difficult) in the “transmission” of the RBI’s monetary policy signals. To that extent, any further repo rate cuts — even assuming it happens on February 2 — will have only a limited impact on what companies and individuals would pay for their loans from banks. One could also very well argue that the overall gains to the economy from lower interest rates will far outweigh (If one thing outweighs another, the first thing is of greater importance, benefit, or significance than the second thing) benefits to small savings deposit holders, who are today receiving real interest rates of 3 per cent after adjusting for inflation. They will continue receiving inflation-beating returns even if rates on PPF deposits are cut by 1 per cent. But selling this politically is another thing.

What can be done? Ideally, the government should follow the report of the Shyamala Gopinath committee that, in 2011, had suggested fixing small savings rates based on “a positive spread of 25 basis points, vis-a-vis government securities of similar maturities…” One way to make it politically more palatable (If you describe something such as an idea or method as palatable, you mean that people are willing to accept it) could be to retain the current rates only for deposits below a certain limit. But ultimately, this is a political call the government cannot delay too long. It’s unlikely to encounter much resistance here from states, which are less reliant on small savings collections following the Centre’s decision to devolve an increased share of its tax revenues.

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TEST YOUR SKILLS

SYNONYM

PALATABLE
a) Agreeable
b) Pleasant
c) Appetizing
d) Any of the above

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d) Any of the above

STARVED
a) Well Fed
b) Complete
c) Malnourished
d) Full

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c) Malnourished

IMPEDIMENT
a) Limitation
b) Policy
c) Free
d) Patron

Click here to View Answer
a) Limitation

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