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  • Category: Miscellaneous

    Do you agree that lower interest rates will feed the youth and higher rates will feed the aged?

    In India, we have higher interest rates when compared to other countries. But retired people blame the Government that their income is decreasing day by day. They feel that the Government is not thinking about them. It is the protectionist mentality that we always go for safer bets. We go for fixed deposits even if they give negative returns when inflation is considered. It may also be noted that higher interest rates will always discourage industries, which in turn reduces the job opportunities for our youth. So, in order to feed the elderly, we are not creating job opportunities for our youth. Do you agree with this concept? This thread may draw some opposition from our beloved senior members.
  • #615086
    Thoughts exchanged is knowledge gained.

  • #615089
    I am not able to understand the logic. What is the relation between interest rates and age? Generally, the seniors will try to keep their money safe for their old age requirement as their productive years are completed. So they try to keep in banks even though they get less income but the money is safe. Whereas the people who are still earning will take some risk and they can invest in share market and other places where they will get the higher rate of income. This is the logic I know. The senior people think it will be good if they get the higher rate of interest in banks also. The interest rates with which the industries take loans are very high when compared to the rates they offer to the investors. It will not have any say in the employment potential. That is my understanding and opinion.
    always confident

  • #615092
    The concept is not correct.
    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.

    Don’t remember forgetting to remember anything

  • #615101
    Mr. Neeraj, we know that interest rate is a tool to balance the inflation and growth. But what I am seeing in India is cost-push inflation because of higher interest rates. If the interest rates are low, industry will grow and it will provide job opportunities, which in turn will induce demand-pull inflation, which I think is good for the economy as most of the people will be in a position to spend. Similarly, lower interest rates will reduce the NPA impact. It is very easy to repay the loans when the interest rates are low.
    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.

  • #615106
    The interest rates are the indication of the economy as well as reflection of important indexes like inflation etc. A reduction in interest rate is a good sign and shows that we are moving towards a better economy. 
    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.

  • #615110
    The inner meaning of this post will clearly be understood only by aged,retired without pension or with meagre pension as they can survive their old age life through the interest amount on depositing their hard earned money. Many Government people receiving pension more than considerable quantum do not care about the interest rates. It is correct to say the rate of interest on deposits made by seniors should be given a good rate of interest as presently they are giving only 0.5 percent over and above the rates offered to others

  • #615137
    Ramachandran sir, your proposal can also be considered by giving high interest rates to elders. But the proposal may be misused by taking loans at lower interest rates and depositing the same in the name of elders for getting higher interest rates.

  • #615138
    I think, there is a basic flaw in linking both phrases. Just becuase we give a little interest more to elderly doesn't mean that industries won't be built adn youth won't be employed. It is just one aspect of the economic and financical policies that have to considered seperately.
    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.

  • #615146
    Mr. Natarajan, I am not saying we should take the food at the mouth from our elderly. Government should think about them separately and that is not through fixed deposits.
    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.

  • #615300
    Mr.Bhuvan, banks and firms are soliciting for new deposits as they want some business, here we have a group of senior citizens most of whom may not be well versed with mutual funds and other investments, hence they choose FD, what's the harm in giving them an extra interest. Of course, the deposits can easily be regulated to prevent younger family members and others misusing the senior citizen benefit of higher interest rates.

  • #615301
    The banks are attracting the elders who are about to retire to park their funds in their fixed deposit accounts , so that higher interest rates of half percent more is offered and that was the gratitude first extended by Global Trust Bank and later followed by other banks. Banks know that elders wont spend the money that easily and that early after their retirement. And every elder wants to take care of their family in best way and they utilize their money very productively for the benefits of grand children. So what is wrong for the banks to give extra interest to those elders who trust the bank and invest their money.
    K Mohan
    'Idhuvum Kadandhu Pogum "
    Even this challenging situation would ease

  • #615312
    The thread author is right in his theoretical logic.

    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.

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