01/11/2019 - Indian Economy | Mainstorming

IAS Parliament 5 years

KEY POINTS

The Global Wealth Report 2019 by Credit Suisse estimated that the median wealth accumulated by an Indian adult is at a mere $3,042 (around Rs 2.1 lakh).

Data suggest that ordinary Indian households have an unmet need for simple savings products that offer complete capital protection with fixed returns, which can be accessed at convenient times in their neighbourhood.

Why small savings

· Post office schemes directly channel the investments of small savers into the National Small Savings Fund, which is a direct conduit for Central government borrowings.

· These schemes thus represent one of the safest avenues in the economy, without the rigmarole of deposit insurance.

· India Post automatically commands the confidence of even less literate depositors. With fixed interest payouts, investors don’t need to track bond or stock markets or do due diligence on balance sheets to gauge the safety of their money.

A revamp

· Though small savings schemes were initially envisaged as vehicles for long-term investors, most of them (except for PPF and Sukanya Samriddhi) are today available for less than five-year tenors. This needs to be remedied.

· It makes sense to offer more small savings schemes in the 10-, 15- and 20-year tenors. At the same time, convoluted conditions surrounding early exits need to be dismantled, as small savers have a high need for emergency liquidity.

· While it makes sense for the Centre to levy tax on interest from Post Office Savings/Time Deposits to ensure a level playing field with bank deposits, there’s no reason why concessions cannot be extended to the Senior Citizens Savings Scheme or the Monthly Income Scheme, which cater to specific categories of investors.

· To expedite its digital transformation, India Post must abandon its pretensions of becoming a Payments Bank and must transform into a purely deposit-taking entity with a friendly customer interface.