September 23, 2021


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What is the way before the elderly population


Madhurendra Sinha

The Reserve Bank has not announced any change in its monetary policy in the past. It allowed the repo rate and reverse repo rate to remain the same. In layman’s language, this means that there is no change in interest rates. This time the announcement of the Reserve Bank was eagerly awaited because the rate of inflation is increasing in the country. Apart from the government, the Reserve Bank has a big role in controlling inflation. To control this, he usually raises interest rates so that the flow of money in the economy decreases. It is believed that this keeps the prices in check.

got more interest

Although its former governor Subba Rao changed the repo rate a dozen times during his tenure, yet nothing like this happened. The prices kept on increasing and decreasing. But it benefited crores of people that due to the increase in the interest rates in the country, they started getting more interest on their deposits. In those days i.e. in 2008, banks were giving interest up to 9.50 percent. This was a matter of great comfort for those who did not have any major source of extra income.

About 120 million people in India are senior citizens. There are only about one-1.25 crore of them who get any kind of pension. The rest are either dependent on their children or by putting their life’s earnings in banks or other such institutions to survive on their interest. The continuous fall in interest rates is nothing less than a shock for them. A major reason behind this is that inflation has increased rapidly in the country in the past. During the Corona period, not only the prices of medicines but also the prices of food items have increased unnecessarily. The rate of food inflation is above 6% while the rate of interest is below it. The Reserve Bank estimates that this year the inflation rate will be 5.7%. But a good pace of monsoon and a good kharif crop is expected, which will keep inflation under check. However it is still three months away. That is, for the time being inflation will continue at the same pace.

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At present, the inflation rate being more than 5% is a loss deal for the depositors in the banks as the banks are giving less interest to them. The value of depositor’s money is going to minus. So he has no choice. As a result, senior citizens are largely investing in mutual funds, debt funds, government bonds. Fixed deposits are no longer attractive to them. Mutual funds are risky and are completely affected by market volatility. At present, a large number of foreign money is invested in them and the sooner the foreign money comes in, the sooner it goes away. Among other ways of additional income, there is also 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 can be more earnings, but the uncertainty is very high in most of the earning instruments. Fixed deposit is right here.

Although the government has introduced the Senior Citizen Savings Scheme fund and at present it gives 7.4 percent interest, but only Rs 15 lakh can be deposited in this scheme and that too for only five years. The trouble on this is that the amount received from it will be taxed. Its specialty is that it is guaranteed by the Government of India and the reduction or increase in interest rates will depend on the government itself. Its drawback is that it has a lock-in period and you cannot withdraw money prematurely.

Another government scheme is the Pradhan Mantri Vaya Vandana Yojana. It started in 2017 for senior citizens. This is a type of retirement cum pension scheme and in the beginning of this scheme, there was a facility to pay interest from 8 to 8.3% but it has been reduced to 7.4% in 2021. Investment in this can range from Rs 1.5 lakh to Rs 15 lakh. Its duration is 10 years. In this, money can be withdrawn prematurely on certain conditions. But the problem with this scheme is that the interest earned is not tax free.

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There is also a Post Office Monthly Income Scheme for senior citizens, but the interest rates are only 6.6%, which does not look attractive. Its advantage is for those people who have less money or who do not want to implicate more money because the entry in it can be done from only 1500 rupees. There is a problem in this that there is no exemption in income tax. That means you may have to pay tax on the interest. Unlike the other two schemes, there is no exemption under 80C.

spend more, earn less

Some people argue that interest rates in America and European countries are only slightly above zero, so why are people running after it in India? The answer is that there is no social security for senior citizens. There they get support for all kinds of expenses, whereas in India, money is also spent for treatment because the condition of government hospitals is pathetic and there are no other types of basic facilities. Their expenses are high, their earnings are very limited.

Disclaimer: The views expressed above are those of the author.