Knocking off Schemes for senior citizens by imaginary fears
Even so not wise.
A big noise in media, ‘Big Cost Of Loans From Small Saving Schemes’.
The fear is : The government’s borrowing cost is going up, even when the yield on gilts trends down. This should not be considered bad for fiscal health. The problem can be traced to the sharp rise in central borrowing from small saving schemes in the past four years. It distorts the interest rate structure, window-dresses earnings of banks and sends wholly wrong signals on the cost of funds economy-wide.
The lower quantum of market borrowings has, in turn, reduced the yield on 10-year government bonds, which has dropped to 7.12% of late and raised the marked-to-market value of bonds held to maturity on banks’ books. It is true that interest rates on small saving schemes are now mostly linked to benchmark bonds yields. However, the government borrows from the small savings corpus from the National Small Savings Fund (NSSF) at significantly dearer rates, at present about 8.4%, and increasing reliance on small savings for government borrowing is clearly not prudent. And rigidity in small saving rates does distort the interest rate structure.
India does not provide a basic social security cover, unlike in most advanced economies. So, high expectations emanate on any scheme for senior citizens, naturally. It is indeed a boon for those who do not have pension and cannot avail BPL facilities.
The government would, perhaps, withdraw or scale down the scheme, perhaps, after a few decades by when the National Pension System would have been subscribed by every senior citizen, if need be. Senior citizens’ schemes should not be knocked off by imaginary fears.
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