Lower rate on PPF: Govt torments middle class

There is a saying in Hindi, chor chori se jaye herapheri se na jaye (the thief may give up stealing but he would continue to indulge in monkey business). So, in his jihad against the middle class, Finance Minister Arun Jaitley & Co are leaving no stone unturned. Forced to withdraw the proposed tax on retirement funds, now they have brought down interest rates on small savings schemes—the financial instruments Middle India, especially the retired, depend upon.

The government decision to lower interest rates on small savings, including on the hugely popular Public Provident Fund (PPF), by 60-130 basis points also indicates not only the gross incompetence of the Narendra Modi government in managing the public exchequer but also its shamelessness to tax the salaried. Despite being the beneficiary of cheap crude, the government has been unable to improve the fiscal situation to the extent it could and should have. The main reason is the absence of economic thinking; the new regime is comfortable with the socialist paradigm and, therefore, happy following the policies of the previous Congress-led government, be it NREGS, food security, or aadhar.

On the revenue side, too, it is unable and unwilling to look beyond the convention. So, it continues to sell minority stakes in public sector undertakings, not realizing that by privatizing them it can generate huge amounts. Unsurprisingly, it goes for soft targets, mainly the middle class. Soft targets because it is not, say, a dominant caste that would bring life to a standstill.

So, Jaitley and his deputy, Jayant Sinha, have slashed interest rates on small savings schemes. The PPF will now get 8.1 per cent interest against the present rate of 8.7 per cent. The interest rate on Kisan Vikas Patra has been brought down to 7.8 per cent from the current 8.7 per cent, while that on the five-year National Saving Certificate has been reduced to 8.1 per cent from 8.5 per cent.

The five-year Monthly Income Scheme will also get to 7.8 per cent instead of the present 8.4 per cent. The interest rates on the Sukanya Samriddhi Account and the Senior Citizens Savings Scheme have been reduced to 8.6 per cent each from the current 9.2 per cent and 9.3 per cent, respectively.

Jaitley turned his back on the solemn pledges that he grandly made. Earlier, he had grandly announced that interest rates on savings schemes for the girl child and for senior citizens would not be reduced for the schemes served “laudable social development or social security goals.”

Unable to think beyond the obvious, FinMin mandarins scramble for the crumbs of revenue wherever they could lay their hands on. In a way, this is not surprising, for the government has no vision and Jaitley doesn’t know much about the economy. And the economic establishment is clueless.

In an interview with this website in April 2015, senior Bharatiya Janata Party leader Subramanian Swamy had castigated Reserve Bank of India Governor Raghuram Rajan, Chief Economic Adviser Arvind Subramanian, NITI Aayog chief Arvind Panagariya as people who “don’t have any ideology. There are some things you don’t do if you are ideologically inclined. If you are not, you feel anything that maximizes revenue is okay…”

Revenue maximization can and should be the objective of the CEO of a corporation, but not of the finance ministry of a country in transition. This was the reason that Swamy didn’t see them as a set of technocrats; termed the troika as a bunch of technicians who cannot inspire. “They can plug a hole, but can’t make a building.”

A year down the line, electricians and plumbers are at work, and we are given the impression that the foundations of a grand nation are being laid. The middle class, meanwhile, suffers because of the incompetence of technicians.