My Letter to our Finance Minister

My Letter to our Finance Minister

Mayank Mehra CFA FRM  | Sep 13, 2019 21:56

As sent to the Ministry of Finance- Union of India

Dear Ma'am,

I have certain suggestions upon the current economic situation which if you at least review I would be truly honored.

With respect to the current economic situation, I strongly believe the following are namely responsible and the second part should advise you on how one lynchpin reform could change the entire situation.

The current economy is facing a crisis dominated by lower spending and capital liquidity being crunched. While the demonetization was a revolutionary step to curbing the parallel black economy, I feel it momentarily succeeded but people out of force of habit continue to hoard money. Now with GST and the PAN/ ADHAAR being enforced in full force this hoarded money has come out of the system and can not contribute to the churn. This delay in the churn of capital has increased defaults and credit risk in the general system. The rising risk has eventually caused fear of unemployment in the masses decreasing consumption expenses and increasing capital laying in banks. This increase in the capital in a savings account has required the banks to hold a higher reserve of free capital and hence reduce loan outflows which in turn impacts business growth, completing the vicious cycle which has trapped the entire economy as we know it. Considering you agree with my assessment of the situation,

I would like to point out a few suggestions

  1. Interest on Savings Should be reduced to 1.2% for students, 2% for the general people and kept at 6% for senior citizens while introducing shorter-term FDs.
  2. The government would introduce "No Questions Asked" Bearer Bonds that can be purchased with cash carry a 4% pa interest payable only at the time of redemption. Redeemable only into bank accounts.

The 1st Step would focus on making sure money moves into consumption, the FDs would decrease problems of ALMs for the banking system and allow them to loan out more capital since they will need to hold lesser money. The 2nd step would focus on the hoarded capital in the form of cash lying in households, while the money would enter the system the only way for people to get that back would be at the time of declaring their identity and only into banks.

Mayank Mehra CFA FRM

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Yoganathan Ramia Krishnamoorthy
Yoganathan Ramia Krishnamoorthy

Indian public used to 4 % interest.   ... (Read More)

Sep 14, 2019 07:24 GMT· Reply
Manoj kumar
Manoj kumar

Cash was big part of the purchasing power of indians earlier, specially rural india. This has been turned down brutually by Modi govt in form of reforms and corruption kerb. Now this is leading to current scenario. All the developed nations has been through stage but it was decades ago.   ... (Read More)

Sep 14, 2019 06:50 GMT· Reply
Chandrasekaran Narayanan
Chandrasekaran Narayanan

Even savings reduced to 19% from 30%, the main problem is the poor implementation of GST, the Govt. was keen on revenues rather capital expenditure on infrastructure.  ... (Read More)

Sep 14, 2019 06:32 GMT· Reply
Maninder Kohli
Maninder Kohli

Hahaha, India is not developed country so dont try to put these points in indian economy. The money saved in Fixed Deposit is security to People after 40 years of age. Rather goverment should start giving Free Medical issuance to all citizens and give sence of secuity to people who pay taxes that they will be taken care off in future at time of retirement. So govt should start some scheme which should state if you pay this much income Tax then you can avail these free services in future.  ... (Read More)

Sep 14, 2019 06:32 GMT· 1 · Reply
Mighty Moustache
Mighty Moustache

What if students give all their money to senior citizens in their family to deposit?   ... (Read More)

Sep 14, 2019 06:26 GMT· Reply
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 中文 香港 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+