There are many people in Bangladesh of small means who would want their money to grow. They want to invest their money to this end but find no feasible outlets. Entrepreneurship is no doubt preferred as a way of investing one’s resources and making gains on the investments. But unlike the big investors on manufacturing or services who can count on many factors to remain viable in their enterprising, the small investors in our context cannot rely on such cushions. Therefore, they have always tended to invest their surplus resources on the safest medium available, i.e. the government’s various savings schemes.
The savings schemes or savings certificates used to be preferred by them for many reasons. First of all, they generally provided interest rates on maturity at a notably higher rate than the banks. The capital market could be an investment outlet for the small investors. But this market has remained stagnant for a long time. Many small investors who invested in the capital market in the past are very resentful because the prices of their shares are substantially lower than the prices at which they bought them. Even the companies seen as profitable do not declare dividends regularly or declare unattractive dividends. Thus, finding no other safe and gainful outlet for investments, the small savers’ only option seemed to be the government’s savings schemes. In a comparative sense, these proved to be very safe investment outlets that provided relatively higher interest rates.
Besides, saving ought to considered also as a major economic policy of the government. Indeed, the people of a poor and developing country needs to save at a higher and higher rate. On the one hand, such savings improves individual resourcefulness and, on the other, the mobilised resources can be utilised by the government for developmental financing in many areas. Surely, the government creates debts for itself by selling the savings certificates on which it has to pay interest . But the saving schemes also encourage the national savings habit which is economically very desirable and provides the government with massive ready resources to borrow to spend on different developmental projects. Without the savings schemes, the government would not be in a position to lay its hands on a vast pool of mobilised resources to meet its expenditures and the individual savers would be worse off having not saved their resources but spent them on consumption.
But the government has been acceding more and more to suggestions from various quarters by reducing the number of its savings schemes and also much pushing down the rates of interest offered by them. Besides, some years ago governmentimposed a 10 per cent tax on the interests to be obtained from these schemes. But this move pushed into much distress a huge number of people in the country who depended on the government’s savings instruments and got benefits for themselves and created benefits for the government as well. Besides, this blow on the savings schemes also showed up adversely on the overall national savings rate which was previously growing stronger and stronger every year.
Who are the people at whose expense the new policy of maiming the savings schemes is pursued ? They are pensioners, retired civil servants, small business operators, housewives whose husbands died, old and infirm people with their life savings, etc. In most cases, these people are not to be blamed for not taking risks like young people with what could be resources saved over a life time. They depend on their capital gains on investments in these safe savings certificates in many cases as a form of regular income with which they meet family expenses, needs of health care, rent and support to younger members of their families. These people are now confronted with great difficulties in investing in the limited number of saving schemes and, more significantly, due to the interest rates in the remaining saving schemes getting substantially reduced. Further, the 10 per cent tax on the interest accruals of saving schemes camelike a shattering blow to them. This is specially more biting nowwhen the pandemic situation over the last more than one year has been squeezing financial resourcefulness of small investors harder and harder.
Interest given on savings should be above the rate of inflation to create some motive among savers that their saved amounts would be above the rate of inflation. But the prices of some essential consumer commodities have gone up by well over 10 per cent in the span of only several months. In that case, even the highest rates of interest now being given on the government’s saving schemes are nothing attractive for the savers in terms of the fast climbing costs of living or inflation.
Under the circumstances and considering the pandemic situation when the real income of many small people have been falling across the country, we think that government should substantially reduce tax on interest accruals on saving schemes or withdraw the same for a period till people’s financial abilities improve significantly. The next year’s budget is round the corner., We believe the government can declare withdrawlall together of the tax on interest accruals of savings instruments for a period of time or fix the same at a nominal rate, say 2 per cent. Such a decision will no doubt bevery well received by people of small means and come as a great relief to them.
