Economic Highlights
New Delhi, 12 December 2014
Raise Interest Rate
SAVE COMMON MAN & BANKS
By Shivaji Sarkar
It is time for the Reserve Bank to raise interest
rates, particularly on deposits, to save the investors. Industry, which has
misled the Government in 2008 and subsequent years, has no case for demanding
another “incentive” – subsidy – at the cost of the common man. It has
benefitted tremendously during the so-called slowdown and it does not deserve
any more.
The companies have learnt from the bad economics of
the West, the poor corporate governance, to increase their profits. The western
world was afflicted because of deliberate bad management of the finances. Now
innumerable Satyams are likely to rob the Indians.
On an average the Indian industry during the past
five years has earned tremendous profit by fleecing the common man. The
accumulated profit, during the past five years, of most of these companies goes
over 500 per cent and even the weakest have bagged 100 per cent.
Further, inflation is their creation by jacking up
prices of all consumer products from soap, food and beverages to cars and
machineries despite fall in prices of raw material. The industry through the
large retail chains also cartelised to increase prices and bolster its profits.
But it shied away when it came to the much spoken of corporate social
responsibility (CSR).
The industry has gobbled up incentives worth
thousands of crore. It not only did not pass on the benefit to the consumers,
who are forced to sustain their unethical functioning, the companies even
raised the prices blatantly of products on some silly pretext or the other.
Now they want to rob the consumers further by trying
to have lower interest rates. Yes, it hurts consumers because as lending rates
to the giants are reduced, the common man takes the brunt by losing on their
deposit rates. Unmistakably, it’s a double whammy for the common man.
The Industry has been clamouring for a rate cut
citing decline in inflation to a “five-year low of 5.52 per cent and fall in
oil prices”. It is silent on heaping Rs 2.36 lakh crore of non-performing
assets or NPA (bad debt) on the public sector banks. The corporate have gobbled
up people’s hard earned money and now are demanding postponing of repayment
euphemistically called restructuring.
The interest earning lost on such lending as well as
the capital loss to the banks unfortunately is being treated lightly. It
appears that public money belongs to everybody except those to whom it belongs.
They are not even answering where the money lent to them has been siphoned off.
It has certainly not gone into productive use. Has it created black money?
Where have they parked the people’s money? The corporate owe an answer before
they open their mouth for any more concession.
In the last few years, the number of industries in India have
increased manifold, a clear indication that the corporate need to shed more
than grab. Numerous Indian industries are growing in stature and gaining more
importance as days pass by. Though the main occupation has been agriculture for
the bulk of the Indian population, recently India is moving towards rapid
industrialization with its different sectors like iron & steel, real
estate, IT, food and beverage, travel & tourism, business process outsourcing.
The ten richest Houses that manage many of these activities have thrived during
the “years of slowdown”.
Others have not lagged behind. The GDP slowdown has
strangely seen adding to their kitty. The common man has lost jobs, has to
settle for poorer wages and the Government was forced to shell out over Rs 1
lakh crore to pacify them with employment guarantee schemes (MNREGA) so that
the corporate could further prosper and the Government had to scurry for
development funds.
The CAG has been eloquent on how they have become the
largest possessor of fertile agriculture lands, which, as so-called special
economic zones (SEZ), have become their largest fiefdoms. In 1996, the fear of
a corporate zamindari was expressed.
It has become a reality. The SEZs are bigger crimes than the coal block.
It calls for a thorough review of all of these. Many
schemes have to be scrapped and the properties of poor taken over have to be
handed back over to the original owners. Remember, the western financial
institutions heavily lost on similar activities. This country does not seem to
have learnt from the great 2007 Lehman-AIG financial burst.
The western world is full of instances how corporate
incentives have only made them stronger and the people poorer. The South Carolina
(US) Policy Council on March 12, 2014, observed, “While South
Carolinians’ income has remained largely static in comparison to the rest of
the nation, we’ve doled out more and more tax incentives to specific companies
and industries in the name of ‘economic development.’ Indeed, from 2000 to
2010, various incentives cost South
Carolina $2 billion and during 2014, another $3
billion in sales tax exemptions”.
The council further states: “Aside
from the many transparency issues raised by the practice of “incentivising”
companies and industries, there would appear to be very little evidence that
they are effective. Heightening skepticism about their value is the fact that
public officials themselves seem to have no way of measuring the success or
failure of incentives.”
It seems at least one person is
treading with caution – RBI Governor Raghuram Rajan, despite being under
pressure. He realises that even at 5.52 per cent rate, prices are not
affordable as it is over almost 46 per cent increase in commodity prices. He
also knows that a rate cut or any incentive would be counter-productive as the
corporate are not reducing the prices. The RBI head does not believe that the
primary factor holding back investment in the country today is high interest
rates.
So far he has held on to his fort.
He needs support to carry it further. Rajan has to come out with norms for
higher deposit rates, marginal high lending rate for common man, and highest
rates for the corporate so that they could not pounce on common man’s flesh. Besides,
it also needs to raise interest rates on home loans to save the common man from
being overcharged by the housing companies. This would save the banks, which
have now little chance of further recapitalization by the Government. Without increasing
interest rates, the finances of the country are doomed.--- INFA
(Copyright, India
News and Feature Alliance)
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