RBI governor Dr D Subbarao recently said, “Inflation is a regressive tax for the silent poor”. Despite the RBI’s efforts, inflation refuses to come down. Moneylife columnist, in his open letter to the RBI governor, suggests ways to mitigate the miseries of the large majority of India’s poor

Dear Dr D Subbarao,

At the outset, thanks for championing the cause of the poor and the downtrodden of our country. Your statement at Tiruvananthapuram makes a refreshing departure from the stand taken by the powers that be in the government, who are voicing their concern over the slow growth of the economy due to high interest rates, unmindful of the galloping inflation causing havoc in the life of a large majority of people of our country.

You were right when you said “Inflation is a regressive tax for the silent poor.”

You are perfectly right in saying “Powerful and resourceful corporates may protest high interest rates, but there also exists a vast majority of silent poor who suffer worst from high inflation.  Unlike in the former’s case, their voice is not heard in the media…”

We salute you for airing your views boldly and firmly and for not relenting under pressure from the industry bigwigs coupled with the media.

On behalf of this large majority living below the poverty line in our country we compliment you for your statement that bringing down inflation within the comfort zone of 5% is RBI’s priority and we hope and sincerely pray for the success of your endeavours.  
But despite all your efforts, inflation is stubbornly refusing to come down, putting more pressure on you to bring down interest rates without any corresponding effort by the government on the fiscal and supply side to contain inflation.

Time and again it is observed that the government always try to appease the rich and the wealthy while doling out small favours to the poor by way of subsidy, out of which 90%, as admitted by one former prime minister, is eaten away by the middlemen and only 10% reaching the beneficiaries. With this experience, we have a lurking fear that the government may bulldoze you to follow their directives.

Against this background, we submit this open letter to you with a few suggestions mentioned below seeking your indulgence to consider implementing them, in earnest, which will go a long way in mitigating the sufferings of the large majority of our country’s men and women, and save the nation from the potential chaos and anarchy.

1.    Credit subsidies directly into the bank accounts of the beneficiaries
The first and the foremost priority for the banking industry is to gear itself to the task of crediting the subsidy amount due from the government directly into the bank accounts of the beneficiaries, thereby eliminating the middlemen completely. This requires a two-pronged effort.

Firstly, banks have to ensure financial inclusion of all those below the poverty line. This is a huge task as on rough estimate there may be more than 200 million people who might be eligible for subsidy under different schemes of the government and most of them may be outside the banking net at present. To bring them within the banking system will be a herculean task and the banks will have to face this challenge with utmost grit and dexterity.

The second step would be the logistics of extending the banking facilities to unbanked rural areas. The banks will have to be ready with robust infrastructure and technology to credit the subsidy to the beneficiaries’ account seamlessly and perfectly with out any hitches. This will be in the interest of the banks themselves, as it would bring in the much desired savings deposits on a continuous basis from the rural population, which will benefit the banks in the long run.

If the RBI takes the lead and galvanize the banking industry to meet this challenge as well as push the government to implement this project, it would plug the leakage in the subsidy disbursement and eliminate rampant corruption existing in the system at present.

2.    Fiscal relief to the bank depositors
Over 300 million bank depositors' savings, mostly middle class, have got eroded due to rising inflation for more than last three years. If and when you reduce the lending rates of banks, either by persuasion or by force, it will have a cascading effect of bringing down deposits rates as well, which will be a double whammy for the bank depositors, as they have to pay income tax on interest earned on all their deposits, bringing down their real rate of return to less than 4% against the consumer price inflation at near 10% prevailing at present.  

The only way to provide some relief to the middle and the lower middle class who form the bulk of the deposit base is to exempt the interest earned on the bank deposits from the income tax net, at least to the extent Rs2 lakh per annum over and above the basic exemption. If you can prevail over the finance minister to effect these changes in tax laws before bringing down lending rates, it will be a great service to the public.

In the good old days, bank depositors had a deduction of Rs12,000 under section 80L.This was suddenly withdrawn for no valid reason and nobody, including the RBI, raised any finger against the move.  Last year, mercifully, a tiny rebate of Rs10,000 was allowed on interest earned on savings bank accounts, which is not only ridiculous, but an insult to the captains of banking industry, who appear to be least concerned even when the household savings in financial assets has gone down to 10% for the first time in 13 years, as per the August 2012 report on the Economic Outlook for 2012-13.This is the direct result of negative return obtained on bank deposits.

3.    Abolish TDS on interest earned on bank deposits of senior citizens
The Finance Act 2012, passed by the Parliament earlier this year has very graciously exempted senior and super senior citizens of this country from payment of advance tax and permitted them to pay the appropriate tax. But this solves only half the problem, as the authors of the enactment have conveniently forgotten to exempt the senior citizens from the rigmarole of tax deduction at source on interest earned on bank deposits, which is the most obnoxious part of the tax laws in our country.                       

If the tax is deducted at source from interest, it obviously serves as advance tax and will defeat the very purpose of exemption granted from payment of advance tax to senior citizens. Though there is a provision to submit Form No 15H to seek exemption from TDS, more often than not, these forms are lost in the humdrum of daily routine in banks or not properly recorded. This results in tax deduction, causing stress and strain to the senior citizens for no fault of theirs. It would be an invaluable service to nearly hundred million senior citizens if the RBI could persuade the government to exempt TDS on interest earned on bank deposits of senior citizens, who will be more than grateful to you for your benevolence.

4. Offer preferential rate of interest on bank deposits to disabled people on par with senior citizens
All commercial banks at present offer a higher rate of interest up to 1% over the normal rate on all fixed deposits accepted from senior citizens. But one special class of depositors who deserve such a preferential treatment are the disabled and physically/mentally challenged people, who form about 2% of our population as per 2001 disability census.

The need to support the cause of disabled hardly needs to be emphasised. If commercial banks are allowed to offer preferential rate of interest to this special class of people—irrespective of their age—on the lines of senior citizens, it will serve as a helping hand in making their lives easier as well as an ideal way in which the banks can play their role in meeting their corporate social responsibility. It is by empathising with them that we can appreciate the problems encountered by them in their daily life, This is an area where the RBI has an exclusive jurisdiction and your favourable decision will be a game changer in the life of the disabled people of our country.

This letter is written on behalf of millions of hapless poor, middle class, lower middle class and the disabled people of this country, in short ‘aam admi’, whose voices are rarely ever heard and thus suffer silently.

We thank you for your time and attention, and with warm regards,

Yours sincerely,                                          

Voiceless, faceless, powerless people of India.

(This open letter is by conceived and authored by our columnist who writes for Moneylife under the pen-name ‘Gurpur’)