The Hindu Business Line : Interest rates

This is with reference to "Why interest rates should go up" (Business Line, January 2). Low interest rates are normally present only in well-developed economies. It is an artificially created aberration to have a low interest regime in India, a developing nation.

This has already created socio-economic anomalies. The low interest regime has failed to kick-start the economy. No new industrial activity has been witnessed. The cheap credit has been only used to finance wasteful expenditure which will not help in capital formation.

The industrial giants have all replaced their loans with cheap credit. In other words the scarce resources of the senior citizens, widows and poor pensioners and charitable trusts have been swallowed by giant corporates at very low rates. These poor sections of society have been taken for a ride. Further, India does not have a social security system to take care of its senior citizens.

The giant corporates have increased their profits due to huge savings in interest and these profits have gone to the wealthy shareholders as dividends. The poor do not have access to shares to receive these bounties.

The new thinking that only massive spending will boost the economy and savings will cripple the economic activity has been the cause of this. The father of this theory Sir J. M. Keynes had only suggested capital expenditure by the government to kick-start the economy but we find that it is wasteful consumption by the urbans based on cheap credit and credit cards that is now keeping the economy busy.

S. Santhanam

Chennai

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