Friday, December 27, 2013

Retirement savings and Inflation Indexed Bonds

This inflation index bonds of RBI are neither attractive nor acceptable for the saving community from middle class and lower middle class who include Retired category and pensioners. The reasons are1) The return assured is only 1.5 % above the inflation index which is flexible and not reflecting the ground realities of retail prices in the market,2) the money is locked up and interest income is cumulative in nature,3)the interest income is taxable4) the procedure involved is not customer friendly. Apart from these disadvantages, why RBI which is of late shedding all its retail functions including the very essential and traditional function of issue of fresh notes and coins should undertake this retail issue of certificates though through banks to small savers is a mystery. Its Public Debt Department is almost facing closure and the activities in relation to public debt are being taken over by the Central government to divest RBI of its public Debt function to remove the conflict of monetary policy functions. The RBI cannot control the present inflation as it is caused because of several reasons other than monetary policy implications is proved beyond doubt since 2009 onwards. Strange are the ways the RBI is functioning of late.

Dr.T.V.Gopalakrishnan.

(This comment appears in Money life in response to the news item " RBI’s inflation index bonds better than bank FD for  for retirement savings").

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