Thoughts exchanged is knowledge gained.
Interest rate is a tool to control the flow of money (by RBI).If rate is reduced money will flow to the market. If it is increased money will be sucked from the market. It is tool to balance. Inflation is eroding the value of money not rate.
Banks will charge you for keeping your money with them, forget about interest! This is the way Europe is moving. Indian economy is protected. According to me, no need to worry.
We should not think that banks will starve for money if the interest rates are lower. If the model is working in Europe and America, why won't it work in India?
Did we ever see banks defaulting in paying interest to depositors? But it is very common to see creditors defaulting to banks. If such phenomena keeps on happening, banks will collapse slowly. We are already seeing most of the public sector banks running in losses.
Unfortunately in our country people get retired at the age of 60 though a person can very well work upto 70.
Probably Govt has done so to give job opportunities to younger generation because if people do not retire at 60, the vacancies will not be created.
When interest rates are low the loan is also available in low rates making it affordable for the entrepreneurs and businessmen.
The aged people do not go in these details and because of the corrupt practices in Govt departments do not believe in the economic and financial jargon.
So in nutshell in one way the crying of seniors is justified but given the assurances that the interest lowering measures alongwith good governance will curtail inflation and make life more easier for them, they may stop their hue and cry.
Thoughts exchanged is knowledge gained.
Today, there are more and more nuclear families, there are many senior citizens who live alone with help nearby, the health care costs of the elderly are increasing, day to day expenses about diet, mobility and utilities are also raising. A nation that ignores the senior citizens would be frowned upon by its own people. There are countless scams, countless white elephant projects that if avoided will give enough revenue to funds the industrial programs for the youth. Taking away a little extra interest from senior citizens is like a school bully robbing a candy from an innocent child.
I will tell you one more theory regarding high interest rates. Let us think that one entrepreneur has some seed capital with him and he wants to establish an industry, whose profit margin can go maximum up to 15 percent. Now, if he wants take some loan for the remaining capital, the loan rate will be at 12 percent. Will he take risk by establishing the industry only for 3 percent gains? Instead of taking risk, he will put his seed capital in the fixed deposits and will enjoy 6 -7 percent interest income.
'Idhuvum Kadandhu Pogum "
Even this challenging situation would ease
Banks take deposit and get their profit by lending it to others. So the lending interest rate will be the deposit interest rate + the margin of profit. However the interest rates are always sensitive at both ends to the respective beneficiaries.
If loan interest is very high, the demand for loan will be less and banks cannot make good profit. So they may no need more deposits. Then they reduce the deposit interest rates. However when the deposit rates fall, the depositors ditch banks and go to some other avenues. So far theory holds good.
Now comes the practical side.
If you take the salaried youth then their source is limited and do not have nor do they go for alternatives every time interest fluctuates. So it is only the non-salaried youth that we have to take into consideration.
The elderly and retired on the other hand have a very limited source of income. Bu in the matters of tax and costs they have to face the same burden as the salary earning or business earning people. However they do not have the facilities and paraphernalia of the profit earning business men nor the salary earning youth. The insurers, lenders and all similar others avoid the elderly retired and/or load them with extra costs like higher premium or lower coverage or nil coverage. At the same time they need extra medical expenses. So for no fault of theirs they are burdened and penalise more.
As heads of family or parents, they are supposed to support their younger family members in the form of margin money or outright payment etc for buying a vehicle or home for their son or daughter. As the residual age is uncertain and not to expect very long, they cannot invest on long term, and they can invest only on low risk avenues.
Hence they need a compensation in some way to meet the escalating inflation costs and expanding essentials.
That was the logic of giving the senior citizen a slight higher rate for their investments. If that is not given then the income of senior citizen should be exempted from income tax. at least.
The argument that business will not be profitable at higher rates cannot be accepted as there is no ceiling for profit in business. The GST has made it amply clear that the business does not bear the taxes and only the final customer bears the burden. It is practically seen that the prices are highly inflated, and the business get very god profit, The declared balance sheet of big and medium business show such huge profits, which is after absorbing interest costs, operation and admin costs and advertising and promotion costs too. Unlike a salaried employee or the retired elder,a business gets umpteen exemptions for the various expenses incurred by the business and its directors. That includes their personal expenses too.
The elderly and retired should be given rate of interest to at lest offset the inflation rate. Now what they get is negative rate. That will only make their capital erode.