News

Corporate
Markets
Info-Tech
Marketing
Money & Banking
Agri-Biz & Commodities
Industry & Economy
Logistics
Government
Opinion
Variety
Columns

Index

Features

Investment World
eWorld
Catalyst
Canvas
Praxis
Urban Pulse
Brand Quest

Stocks

Quotes
SE Diary

Scoreboard

Port Info

Ships in Ports

Archives

Yesterday's Issue
Datewise

Group Sites

The Hindu
Business Line
The Sportstar
Frontline

R.Y. Narayanan

COIMBATORE, Dec. 31

EVEN as the Indian middle class looks back with trepidation at the year gone by, the Budget due in the next few weeks may confirm as to whether the requiem for the voiceless and fragmented middle class has been sung.

Apparently, in no single year has any Government at the Centre shaken this class at its roots as strongly as the present Government that appointed a plethora of committees to go into the administered interest rate structure of the savings products, essentially small savings and PF schemes that carried sovereign guarantee and pension schemes.

This is so because the recommendations of the committees - Parthasarathy Shome and Dr Y.V. Reddy and the IRDA report on pension reforms will have a profound influence on the way the middle class shapes its future. This is because the investment options that are sought to be targeted now are the avenues on which this class, basically white-collar employees, has been dependent all along to save for its post-retired life.

This apprehension has been reinforced by the spectacular crash of the US-64 scheme of the UTI, which for generations has been trusted by people as one of the safest investment options. That the net asset value (NAV) of US-64 units is less than Rs 6 only underscores the pitfalls ahead for this class if the traditional sources of safe investments like small savings dry up.

The middle class is being hemmed in from all directions - by shrinking job opportunities and the threat to even existing jobs in many sectors due to industrial slowdown and downsizing by companies. An uncertain investment horizon is the last thing it could afford.

These threatened changes have come at a time when alternative stable investment options are just becoming rare. Companies that could be rated `AAA' just are not interested in accepting deposits from the public or are offering too low an interest rate to provide relief to those who may be dependent on the interest earned on their deposits for their survival.

The investments in mutual funds too have not brought any great relief to the investors due to the prolonged downturn in the stock markets since early 2000. Even some of the monthly income schemes of mutual funds have been irregular in dividend payments.

The reduction in the income-tax on dividend too has failed to cheer up the investors with many companies securing shareholder approval for reducing the dividend payout and a good number of equity-driven mutual fund schemes yet to declare any dividend in the current fiscal till now.

The interest rate on small savings has been cut twice already and there has been a clamour to reduce the rates further and strip them of the income-tax rebate to make them unattractive for the investors. However, this looks ironical because some of the States such as Tamil Nadu and Kerala are looking at substantial mobilisation of deposits under small savings schemes to shore up their own shaky financial position.

While it sounds good to talk of liberating the interest rates on savings products and making people look for alternative options such as debt markets, such options are still not available in a scale comparable to the post office savings schemes because of the reach of the postal system in the country.

If the Finance Minister is able to come up with a package of measures that addresses these apprehensions of the middle class even as he tries to push through his reformist agenda insofar as interest rates are concerned, he may have hit upon a winning formula. If he does so, the middle class will have something to cheer about.

Send this article to Friends by E-Mail

Stories in this Section
Re strengthens; gilts rally

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line