Catastrophe of bank interest rates - 1

Indian people unlike American and European people do not borrow and spend; they spend out of their earning. Mindset of Indians is much different from that of American and European people. Excepting for personal loans for housing and health generally Indian do not borrow just to spend for pleasure and fun. All attempts to infuse that attitude amongst Indian have failed. We Indian are designed to live a simple life style. Copying western corrupt life style we should not encourage.

The ratio of depositors to borrowers is of the order of about 1:90. That shows for every one borrower on an average, 90 depositors put their saving in Banks. This ratio may vary depending upon different banks and different periods. That shows for the benefit of one borrower RBI is duping 90 depositors of their rightful return when RBI reduces interest rates on deposits to give borrowers its benefits. For the benefit of one borrower, 90 people are deprived of their rightful share in the business. In economics when one section of society benefits in this way it is always at the cost of other section of that society. The imbalance is justified by an argument that, beneficiary section's needs are more urgent and more important to the benefit of all society in general. This automatically suggests that common person (90) who is deprived of his rightful share in the business is of lesser importance than those who (1) benefit. As per the ratio, we have accepted, 90 persons are of lesser importance than that one person who benefits by lower rates of interest. In this argument however, no acceptable reason they give to justify their claim.

Now the question is how this urgency is decided and by what measures? This is a very queer query. Who benefits by this policy of lower interest rates? For that, we shall see different types of borrowers who get loans. They are moderately put in three categories for the convenience of argument. Borrower is associated with product or service they produce. That is why we have GDP (Gross Domestic Product) as measure of social economic condition. Here we notice that the other side of production, "Gross Domestic sells", GDS, is over looked. Actually, for true estimation, we should compare the two GDP/GDS and that ratio shall indicate correct position of that society as far as economic progress concerned. Fall in sells due to lesser interest on deposits shows how only production is not enough to guess true economic condition of that society. In earlier times in India, we had correct relationship between interest on deposits and interest on loans and during all those years, we never had to suffer from two economic ailments, depression and inflation. Here we should also note that GDP represents one out of 1:90 ratio and GDS represents 90 out of that ratio. This also means GDS concerns majority of the society and GDP concerns minority of that society. By neglecting GDS, we neglect majority interest and by giving more emphasis on GDP, we give undue importance to minority. This amounts to creating imbalance in social economic system. Only when we do justice to that majority (90) we will be able to strike true balance in economic system of that society. More we shall see in later part of this essay. When GDP/GDS is one we may say economy of the country is balanced. Unfortunately, this ratio is not taken for deciding the balance of economy due to influence of gambler group of whom we shall discuss in later part of this article. If ratio shows more than one that means depression and if less than one, then it means inflation.

Continues in next post -

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