The government has once again reduced the rate of
profit on National Saving Schemes w.e.f. 1.1.2003. According to saving
certificates, special saving certificates, monthly income certificates
and saving accounts as been fixed at 10.03 per cent, 8.67 per cent and 5
per cent per annum respectively. However, the present decision will not
be applicable on certificate purchased or accounts opened prior to
January 1, 2003.
This is the second reduction in six months and third
since July 2001. The rates of profit have come down to 10.3 per cent
form 18 per cent on defence saving certificates, to 8.67 from 15.5 per
cent on defence saving certificates and unprecedented crunch inflicted
on the NSS depositors in the history of Pakistan. And the victim of this
arbitrary decision are the pensioner, widow, orphan and small poor
savers who generally rely on government guaranteed saving schemes for
profit for their subsistence. To add salt to their wounds these small
savers are told that they have to suffer to provide room to the
inefficient banking system to cut the lending rates for big
industrialists and business tycoons. This is most unfair and callous on
the part of the government.
The official handout explains that as the inflation
rate has come down and lending rates have also been cut by the banks it
was imperative to reduce the rate of profit on saving schemes. However,
despite the present reduction, the real rates of return (adjusted for
inflation) on these financial instruments would range between 2 to 7 per
cent which are much higher than those offered by the commercial banks,
Elaborating further, the press release has also tried this time to
remind the savers of some basic principles. It says that interest rate
policy is an important instrument of macro-economic management that
affects savings investment process. It is in fact the cornerstone of any
government's policy to influence business conditions and economic
activity. The objective of monetary and fiscal policy is to keep the
inflation rate low so that the interest rate could be kept low as well.
The rate of inflation in the country has been brought down to only 3.1
per cent through prudent monetary and fiscal management. Rationalizing
the rates of return on NSS was also a part of the government's debt
reduction strategy, the official handout explained.
Ironically the lending rates charged by the banks on
lending still range between 13 to 18 per cent while profit on saving
accounts have been reduced to 5 per cent. Secondly, the inflation rate
being calculated by the government agencies is faulty and unrealistic.
They only include the prices of some essential eatable and totally
ignore increase in the prices of utilities while calculating the rate of
inflation. The average increase in the prices of atta, onion, potatoes,
mutton, chicken and rice may be within the range of 3 to 5 per cent, but
the price hike in respect of gas, electricity and petrol is much higher.
According to an estimate the prices of utilities have gone up by about
40 per cent during the last 3 year. About 20 per cent of every household
budget is spent on utilities and the people are now paying 40 per cent
more of the 20 per cent of their budget. This comes to a rise of over
10% in the cost of living.
The reason given by the government for their latest
decision may appear logical but the reality on the ground should not be
so ignored. A very large number of retired people, both from the
government and the private sector, widows and people belonging to
low-income groups depend on profits from these schemes. They have been
either totally depending upon them or replenishing their small incomes
through these profits. All of them will be hit hard by the decision to
further reduce the rates of return on all the national saving schemes.
The only saving grace in the situation is the
expected announcement of an exclusive savings scheme for pensioners and
widows which should, of course, carry a higher rate of return. The
Advisor for Finance and Economic Affairs will shortly make this
announcement. But this will not be enough. In a situation where poverty
and unemployment are widespread, the institution of national savings
should continue to serve as a safety net at least for those sections of
the society who have been afflicted by these problems. The government
might have also been encouraged to reduce the profit rates on savings
schemes after it found that they continued to proliferate despite
repeated reductions in profit rates. But that will demonstrate that in
view of the rising cost of utilities and some other feeling compelled to
replenish their meagre incomes. The investment in national savings
schemes is one such option and attractive profits on them should be
assured on a sustained basis.