Shivaji Sarkar
The rationale of TDS on bank deposits is questionable, says a parliamentary panel. The deposits are put only after paying taxes. Should there be a double taxation on the same income? A bank interest earning should not be viewed as an income.
It is an effort by an individual to help the state garner funds which are difficult to come by. The TDS on deposits is virtually killing the hen that lays golden eggs.
India has to take some drastic measures to reverse the policies. Energy charges are at exploitative level and have to be reduced. High savings rate is necessary to push up growth. Policies have to be revised to ensure a better functioning of the economy.
The rating agency Fitch is the latest to lower India’s growth projections. It of course attributes to the volatile political situation. The country is known to be getting mired in problems. The GDP growth is thawing. Inflation is becoming unmanageable. Fresh jobs are disappearing. Now with the lowest household savings rates, in two decades since 1990, hitting the country, it can take it to a further abyss.
The new steps initiated in the name of reforms like hike in diesel and LPG prices, railway fares through levying of services taxes is likely to make things more difficult.
The basic strength of Indian economy has been its high savings by its individual citizens. It has been a tradition to force some savings at all costs. During the era of what is termed as the low Hindu growth phase of around 3 per cent, high savings sustained
The basic strength of Indian economy has been its high savings by its individual citizens.
It has been a tradition to force some savings at all costs. During the era of what is termed as the low Hindu growth phase of around 3 per cent, high savings sustained the Indian economy.
Shivaji Sarkar is freelance writer the Indian economy. Many of the developmental projects and even large public sector units were built with this money.
This is eroding. It signals a deeper crisis. Except lip service at official level, no significant effort is noticed to correct it.
The country is not prepared to learn from the failure of US and European economies. These countries suffered, despite Basle norms, due to high charges by banks, financial institutions and corporate malpractices. The New York stock exchange became the centre of manipulations by people like Bernard Madoff. Repeatedly the nation is exhorted to globalise and follow the failed path. Europe had one of the lowest savings rates and has one of the most unregulated systems despite it being placed elaborately on paper. During the past few weeks many Europeans in countries like Poland lost their huge savings in so called gold schemes.
High inflation – repeatedly RBI has said – cannot be controlled only through monetary measures. Now the parliamentary panel on finance also says that there is no synchronisation between the fiscal and monetary measures being followed by the Government and the RBI. It has said that effective fiscal measures are necessary to rein in inflation and trigger sustainable growth. The fall in net household financial savings to 7.8 per cent of the GDP in 2011-12 is attributed to slower growth and more that to the rising rate of inflation. It has been at 9.3 per cent in 2010-11, and 12.2 per cent in 2009-10. Net financial savings include cash investments, deposits with banks and non-bank companies, investmemts in stocks, mutual funds, small savings, life insurance, provident and pension funds.
Government has brought down the interest rates of savings like public provident fund (PPF), post office monthly income plan, senior citizen monthly income plan. It is coupled with a further erosion on savings owing to tax deduction at source (TDS) on supposed interest income. It is working as a dampener in putting money in official instruments.
The Government needs to heed what the parliamentary panel has said. Its suggestion for fiscal measures apart many others also calls for freeing bank deposits from the clutches of TDS. It neither helps Government earn extra revenue nor it helps the banks or citizens. It has made bank operations expensive.
Moreover the rationale of TDS on deposits is questionable. The deposits are put only after paying taxes. Should there be a double taxation on the same income? A bank interest earning should not be viewed as an income. It is an effort by an individual to help the state garner funds which are difficult to come by. The TDS on deposits is virtually killing the hen that lays golden eggs.
Apart many other rules that prevent opening of new bank accounts should also be viewed as warding off potential depositors. The fear of black money and supposed terrorist operations should not stifle the banking system.
The nation pines for liberalisation. However, the very basics of financial inclusion start with stronger controls.
The entire set of rules for opening and operating bank operations by individuals need to be liberalised and not convoluted. In 1960s, the Government encouraged banks to open minor savings accounts with as low deposits as Rs 5. The opening of accounts was easy and it initiated generations in the culture of savings.
Besides, the procedural issues the fall in industrial and manufacturing production, lack of jobs and high cost of commodities are eroding the opportunities for earning. Disposable – spare or surplus – money is not there with the people.
This requires a slew of measures and steps to bring down the high costs from fuel to food. The US despite the worst crisis it faced in 2008 is in a better position because it has been able to contain its costs.
Policies have to be revised to ensure a better functioning of the economy. High savings rate, necessary to push up growth, could be achieved through a path of neo-reforms – different from World Bank touted ones.
The country has to adopt different regime for paying interests on deposits. Deposits must earn high interest rates to keep pace with inflation. Low interest during high inflation is not good economics.
This leads savings getting diverted to gold and real estate. Since it is hand to mouth existence for the middle class earning even Rs 50000 a month it has become imperative that their interests – the bulk of the consumers – are protected.
If it does not happen, the nation is likely to get into further deeper problems. The policy makers have to come out of the mindset of the western economies. They have ruined theirs. India has to follow a policy where traditional methods are protected, costs and prices are reduced and the nation could move to create happiness for the largest number of people.
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