Arriving at deposit rate

This refers to the interview given by the RBI governor (June 24). With regard to deregulation of interest rates, a reference was made to external benchmarking for loans be equally applicable to deposits, too. Recently, YES Bank had linked term deposits to repo rate. Linking deposit rates to repo rate has its inherent weaknesses. The parameters used by the RBI to set repo rate are inflation and growth, and the RBI shifts gear from inflation to growth and vice-versa.

The linking of deposit rates to repo rate would benefit depositors only when repo rate revision is based on inflation as done recently when the RBI hiked repo rates by 90 basis points.

Prior to that, the RBI had kept the repo rate constant at 4 per cent for over two years since the RBI chose ‘growth’ (accommodative stance) over inflation to ensure not only credit offtake but to ensure that government borrowing goes through smoothly. The depositors were getting negative returns net of inflation for a considerable period.

This is the bane of deposits getting linked to external rates like repo when the stance of the RBI is ‘accommodative’. Now the RBI has shifted its stance to ‘neutral’ since inflation has breached the tolerance level of 6 per cent mark and a hike in rate was effected.

Hence to facilitate external benchmarking of deposit rates, a reference rate based on inflationary trend needs to be set by the RBI for banks to follow, which alone would benefit depositors.

Srinivasan Velamur

Chennai

Murmu, the right choice

The choice of Droupadi Murmu as Presidential candidate by the BJP is a master stroke. By reposing faith in an Adivasi for the highest post of the republic, the NDA has upheld the credentials of India being a mature democracy. With Orissa Chief Minister joining the NDA in supporting Murmu, the result is a foregone conclusion from all angles.

The BJP has always stressed that it should not be perceived as an upper-caste party, and the choice of Murmu is a big move in that direction.

MR Jayanthi Mani

Mumbai

Boosting manufacturing

This refers to ‘India’s manufacturing dream gets a second life’ (June 24). Things have changed drastically in the last 2-3 decades. The kind of massive opportunities China had for scaling up its manufacturing sector are not the same at the moment for India.

The services sector has also grown manifold during this phase. So the best strategy for India would be to have balanced approach.

While India can surely scale up its manufacturing sector by removing all loopholes, it must help create a larger pool of young talent for Indian Inc, by deeply engaging with them and imparting the skills required to do well in the manufacturing space.

Bal Govind

Noida

Open to question

This refers to “Labour reforms and the rise of jobs” (June 24). Some of the inferences in the article linking labour reforms and job growth are debatable. One, job growth depends on a number of other factors like ease of doing business, infrastructural investment, etc.

How VV Giri National Labour Institute isolated labour reforms from these factors is not mentioned. Besides, the figures for “shift towards regular salaried work in the non-agricultural sector” compare the period between 2011 and 2019. During this period greater focus was on ease of doing business and labour codes were in the process of enactment.

Two, the finding assumes that decrease in the number of self-employed and casual workers resulted from their getting into salaried jobs. But the latter also include additions from new recruitment for such jobs.

Three, the article claims that the labour codes were enacted “after extensive consultations with all stakeholders and social partners”. What it omits is that a major stakeholder, the trade unions, is opposed to the reforms as it sees them as pro-employers. This will make full implementation very difficult when the codes become operational.

YG Chouksey

Pune

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