What is the way forward for the aging population?
The Reserve Bank has not yet announced any change in its monetary policy. He left the repo rate and reverse repo rate the same. In common parlance, this means that there is no change in interest rates. This time, the announcement of the Reserve Bank was eagerly awaited as inflation was rising in the country. Apart from the government, the Reserve Bank has a major role to play in controlling inflation. To control this, it usually raises interest rates to reduce the flow of money into the economy. This is believed to keep prices under control.
Got more interest
Even though its former governor Subba Rao changed the repo rate by dozens during his tenure, nothing like that happened. Prices kept rising and falling. But it benefited millions of people as interest rates in the country rose and they started getting more interest on their deposits. In those days, in 2008, banks were offering interest rates of up to 9.50 per cent. This was very convenient for those who had no major source of extra income.
About 120 million people in India are senior citizens. Of these, only 1.25 crore get any kind of pension. The rest either depend on their children or survive on their interest by throwing their life earnings into banks or other such institutions. The steady decline in interest rates is nothing short of a shock to them. One of the major reasons behind this is that inflation in the country has risen sharply in the past. During the Corona period not only the prices of medicines but also the prices of food have increased unrealistically. Food inflation is above 6% while interest rates are below it. The Reserve Bank of India (RBI) has forecast inflation at 5.7% this year. But good monsoon and good kharif crop is expected, which will keep inflation under control. But there are still three months left. That is, inflation will continue at the same pace at present.
Rahul Gandhi arrives at Kerala’s old age home for lunch with elderly women, ‘Onasadya’ painted on banana leaves
Currently, having inflation above 5% is a loss-making deal for bank depositors as banks are paying them lower interest rates. The value of the depositors’ money will be deducted. So he has no choice. As a result, senior citizens are investing heavily in mutual funds, debt funds, government bonds. Term deposits are no longer attractive to them. Mutual funds are risky and are completely affected by market volatility. Currently a large amount of foreign money is invested in them and the sooner the foreign money arrives, the sooner it goes away. Among other avenues of additional income, there is the stock market, which is showing a good move at the moment but nothing can be said about what will happen in the future. That is, there may be more revenue, but the uncertainty in most means of earning is very high. The term deposit is here.
Although the government has introduced the Senior Citizens Savings Scheme fund and currently offers 7.4 per cent interest, only Rs 15 lakh can be deposited in the scheme and that too for only five years. The problem is that the money will be taxed. Its peculiarity is that it is guaranteed by the Government of India and the reduction or increase in interest rates depends on the Government. The downside is that it has a lock-in period and you can’t withdraw money prematurely.
Another government scheme is the Pradhan Mantri Vay Vandana Yojana. It started in 2017 for senior citizens. It is a kind of retirement cum pension scheme and initially had an interest rate of 8 to 8.3% but in 2021 it has been reduced to 7.4%. The investment can range from Rs 1.5 lakh to Rs 15 lakh. Its duration is 10 years. In this case, premature withdrawals can be made on certain conditions. But the problem with this scheme is that the interest earned is not tax free.
These are the top 5 small savings plans, with interest available up to 7.6%
There is also a post office monthly income plan for senior citizens, but the interest rate is only 6.6%, which does not look attractive. Its advantage is for those who have less money or do not want to invest more money as it can be accessed from just Rs 1500. One problem with this is that there is no income tax exemption. This means you have to pay interest tax. Like the other two schemes, there are no exemptions under 80C.
Spend more, reduce less
Some people argue that interest rates in the US and European countries are just a little above zero, so why are people running after it in India? The answer is no social security for senior citizens. While they get support for all kinds of expenses, money is also spent for treatment in India as the condition of government hospitals is deplorable and there are no other basic facilities. Their expenses are high, their earnings are very limited.
Disclaimer: The opinions expressed above are those of the author.