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The interest rates on deposits and other savings instruments need to be reduced, we are told, in view of the low inflation. The rationale behind this argument ignores the retired and the others who depend entirely on income from their investments.

Simply put, the Government's logic seems to be something like this: If some goods cost, say Rs 1,000 today, and inflation is 10 per cent during the year, the same goods will cost Rs 1,100 after one year. Depositors should get interest on their savings, significantly above the inflation rate; say, at 13 per cent or so, in this case.

They can then buy the same goods after one year at Rs 1,100, and still be left with Rs 30, by way of some reward for saving. If, however, inflation is only, say, 4 per cent, interest on savings could be low, at 6 or 7 per cent, because the same goods could be bought for Rs 1,040 after a year, and the depositors could still be left with a reward of Rs 20 or 30.

For the retired citizens, this rationale is totally irrelevant. Consider a citizen, living on his hard-earned aggregate lifetime savings of, say, Rs 5 lakh. When interest rates were, say, 13 per cent, he received Rs 65,000 in a year and he managed to maintain a particular standard of living. But when interest rates on his savings are reduced to 6-7 per cent, he is suddenly left with an income of only Rs 30,000 or Rs 35,000 in a year — an enforced fall in the standard of living of over 50 per cent for no fault of his. In fact, the situation will be much worse because the above-mentioned predicament assumes zero inflation.

If inflation were 10 per cent, he would need Rs 72,500; even if inflation were only 4 per cent, he would still need Rs 67,600 to maintain the same standard of living that cost him Rs 65,000 the previous year. Instead, the "soft interest regime" leaves him with Rs 35,000. Is this fair?

D. R. Pendse

Mumbai

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