The other day, I came across a comment by Planning Commission Chairman Montek Singh Ahluwalia in a magazine. Mr. Ahluwalia was quoted as saying, "I don't believe that the interest rate for savers can be delinked completely from the interest rate system in the country... If you want a low rate environment, you cannot say 'I want a higher interest rate for savers and a low interest rate for borrowers..."
Mr. Ahluwalia makes a logical point which sounds like common sense. His hypothetical interlocutor who says 'I want a higher...' etc is seems to be demanding two conflicting levels of interest rates. The problem is that the 'I' in the statement doesn't actually exist. He seems to be making a conflicted statement because he is a strawman who has been artificially constructed from small savers on one side and the big borrowers on the other.
The small savers are watching their nest eggs bleed away because the interest rates they get are now substantially below even the official rate of consumer inflation, let alone the real inflation they face in their lives. Ranged against these savers are the more powerful forces of the big borrowers who need cheaper money.
Whenever there is any discussion of interest rates in the media, the dominant narrative is that businesses need lower rates. Actually, the entity that most desperately needs lower rates is the biggest borrower in the country, the Government of India. High inflation affects everyone, but the worst hit are retired lower-middle class and middle-class salary-earners who are completely dependent on interest earned from fixed-income investments. Those who are still earning are still in a better position, but a lot of retirees are heading for financial disaster. The push to lower the interest outgo for the benefit of government and businesses is driving this class of savers to old age poverty.
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