A week or so ago I wrote about the ‘Small Savings Puzzle’ in India. Last week in Mumbai, Mr. Mohandas Pai told me to take a look at the Small Savings Shortfall. You can do so too. The accumulated shortfall (Expenditure over Income) is over Rupees 114,000 crores (1.14 trillion rupees). A rough rule of thumb is that Indian nominal GDP is 150 trillion rupees. Therefore, this accumulated shortfall is 0.7% of GDP.
May be, it is to bridge this deficit that the government is borrowing from the National Small Savings Fund by issuing securities and paying an interest rate of 9.5% per annum. The Fund, in turn, does not revise the interest rate paid to the savers in line with the government bond yield as promised. Therefore, banks face competition for deposits. Banks do not lower their deposit rates fast enough. Then, they cannot lower lending rates either too much. Then, we complain that credit growth is anaemic or non-existent. I am reminded of what Thor Heyerdahl said: “Progress is man’s ability to complicate simplicity.”
This is basically income transfer by another name and an indirect one, of course. The public is given so many painkillers in so many different ways because providing them sustainable livelihoods – living wage that beats inflation – is such a tall order in India. I am not blaming the government. It is an impossible task, almost. Sometimes, that is what I feel about India.