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Raise interest rate to save common man, finances, banks

By Shivaji Sarkar

It is time for 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.

The industry has tremendously benefitted 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 Indians.

On an average 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.

The inflation is their creation by jacking up prices of all consumer products from soap, food and beverages to cars and machineries despite fall of prices of raw material. The industry through the large retail chains also cartelised to increase prices and bolster their profits. But they shied away when it came to corporate social responsibility (CSR).

They have gobbled up incentives worth thousands of crore. They not only did not pass on the benefit to the consumers, who are forced to sustain their unethical functioning, they even blatantly raised the prices of products on silly pretexts.

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. It is a double whammy for the common man.

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”. They are 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.

The number of industries in India have increased manifold in the last few years, a clear indication that the corporate need to shed more than grab. The 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 the 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, have to settle for poorer wages and the government was forced to shale 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 review of all of these. Many schemes have to be scrapped and the properties of poor taken over have to be handed over to the original owners.

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 says, “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.

He has so far 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. It needs also 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.

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