Small Savings Rate Mess-Up: Blame Our Perpetual Election Cycle For It, Not Finance Ministry ‘Oversight’ 

by R Jagannathan - Apr 2, 2021 11:54 AM +05:30 IST
Small Savings Rate Mess-Up: Blame Our Perpetual Election Cycle For It, Not Finance Ministry ‘Oversight’ Union Finance Minister Nirmala Sitharaman.
Snapshot
  • Our perpetual election cycle makes sensible economic governance almost impossible. There can be no policy stability either.

    One nation, one election is a prerequisite for governance, whether politically or economically.

The embarrassing announcement of sharp cuts in interest rates on small savings schemes on Wednesday (31 March) followed by a quick retraction by the Finance Ministry does not speak well of the government’s information management.

But above everything else, it points to the likelihood of economic misgovernance in a country that is in perpetual election mode. The Finance Ministry blamed ‘oversight’ for the mess-up, but one should take that with a pinch of salt.

The changes, where rates were cut drastically on most savings schemes, reduced public provident fund rates from 7.1 per cent to 6.4 per cent, the senior citizen’s savings scheme from 7.4 per cent to 6.5 per cent, and five-year fixed deposits from 6.7 per cent to 5.8 per cent, among other things.

The announced cuts were not the result of any new policy; they flowed from an already decided policy on allowing small savings rates to be aligned every quarter to benchmarks based on other market-oriented rates.

These cuts were also warranted by the need to give banks a level-playing field on raising cheaper deposits. If the changes had not been rolled back, small savings rates would not have been too different from the yields currently offered by bank fixed deposits for senior citizens.

But a sane policy cannot work in the midst of an election cycle that is perennial. The savings rate cuts were rolled back not because they were wrong, or the result of ‘oversight’, or even violated the Election Commission’s model code of conduct, but because they were politically inconvenient for the ruling party.

The same goes for fuel prices even if we have a partial deregulation policy in force. As long as there is an election in sight, oil companies cannot price their products independently of the government, thus creating another hurdle to free market pricing and viability.

It is difficult to visualise any government behaving sensibly, whether at the Centre or the states or at local levels, if they have to constantly pander to electoral expectations and adjust already announced policies to prevent an adverse reaction to market developments.

The 'oversight' which allowed small savings rates to be cut is effectively short-hand for politicians in power doing everything possible to avoid decisions that will be seen negatively by the voter at the time of voting.

Isn’t it time we called a spade a spade? Our perpetual election cycle makes sensible economic governance almost impossible. There can be no policy stability either. One nation, one election is a prerequisite for governance, whether politically or economically.

Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.
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