Last Updated on October 4, 2022
It seems incredulous that I am writing this in 2021. It feels like 1921 when I see so many people complain that the govt does not want to help senior citizens or the middle-class or the lower-income group. Every govt regardless of who is in power, tries to do its best to those who need help in every sphere of life, but there are limitations to what can be done.
Concerning personal finance, they do their best to offer good interest rates for small saving schemes (good is always a relative word). The following is apolitical but pragmatic commentary. I am no economist or financial expert. Each day I hope to wake up to reality as soon as possible.
The govt is not a charity organisation with the ability to print money at will (In 2021, adding digital zeros at will). It is a household with a balance sheet. It has expenses, it has debt, and it has income. Here are some astounding numbers:
- In 2019-20 Government has so far (Dec 2019) spent 77% more than its income!
- Pandemic forces government to spend 431% more than its income!
- Post-lockdown govt debt may be set back by 17 years!
No household can survive with this much debt. We cannot expect our economy to become stronger (this means more income, more consumption, better infrastructure etc.) with high inflation rates and high borrowing rates. These have to go down over time. This “decrease in PPF rates” is not some sudden occurrence.
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You can still find citizens who talk about the “golden 90s” when PPF and EPF rates were 12%. Little do they understand that this means the govt was busy battling bankruptcy. Counterintuitive as it may seem, the borrower who goes broke has to pay more interest!
The Indian economy started to open in the early 90s (well, it was forced to, that is another matter). Not many people appreciate that the true wake-up call came in the early 2000s when the PPF rates dropped 3% over the span of about four years: PPF Interest Rate History 1968 to Present. PPF rates have decreased sharply many times and have been downhill for a good 15-20Y now! The 0.7% drop exactly one year ago was only the fourth-largest drop in history, Yet we tend to assume small savings rate are not market linked!
The change in India was most evident then, but it is still changing today. Socialism started giving way to capitalism. That transition is still happening today, and the friction is still present today. Our parents’ generation could not take on capital market risk directly because they did not earn enough. Many of them rely financially on their children today. Perhaps the worst hit by this change. And by our parent’s generation, I am referring to those who retired 15-20Y ago. For them, the change was too much too soon.
My mother’s pension has compounded at an astonishing rate of 13% each year over the last 20Y, but it is barely enough for her (because the base pension was low).
To be fair to the govt (I am not referring to X or Y party here), although small saving rates are indirectly market-linked, the govt has resisted changing it frequently. PPF rates should have been 6.5% for at least the last two quarters. It is not practical to expect more.
The govt does what it can to help senior citizens. Senior citizens in their seventies or older will always feel that it is not enough, but the reality is that not much more can be done. This is not an opinion. This is the cold hard reality. Complaining about it or voting for someone else is not going to help.
If you are not yet in your 50s, you still have some time to recognise it makes no sense to expect the govt to save us. We have to help ourselves by increasing income by taking on capital market risk and actively managing risk in our portfolios.
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