How to save for a rainy day: The basics
A new government initiative has helped millions of Indians save for their rainy day.
The Bharatiya Janata Party government of Narendra Modi announced on Monday that it would launch a special rainy day loan scheme for households earning less than ₹2 lakh ($1,230) a month, a move which will be available to the poorest Indians for the first time.
The plan comes amid a boom in real estate, a major growth driver for the country and a surge in the number of young people living in urban areas.
“We will offer this loan in one of our three ways: direct cash transfer, bank credit or the government-backed ‘Housing Credit Scheme’ that will be ready for people to avail by December 30,” Modi said in a press conference.
Modi, who was sworn in as prime minister on November 3, is trying to make India’s dream of becoming a high-income nation a reality.
The country’s economy has grown at a record pace, and the economy is projected to grow 7.4% in 2019, according to a Reuters poll.
But some commentators believe that the government’s new initiative will do little to improve the situation for those who are stuck in the low-income bracket, who have already been pushed to the margins of the economy by the surge in property prices.
Modi has pledged to boost the number and quality of housing, and to ease restrictions on foreign ownership of properties, a key demand of the poor.
But critics worry that this new initiative, which aims to give the poor a way to get ahead financially, will fail to improve their financial situation, as the government will not be able to pay back the loans, much less provide them with the financial help they need.
To improve their chances of saving for a stormy day, a survey of more than 2,000 people in urban slums in India conducted by a think tank earlier this year found that only 3% of the respondents thought that the Modi government’s rainy day initiative would be a major contribution to their financial security.
“People do not want to give up their land, they want to get rid of their debts and they do not trust the government to do it,” said Gaurav Shukla, a former bank employee and co-founder of The Indian Foundation, a think-tank that has published research on the poor and poor communities.
The government has been trying to address this problem by offering people the option of getting an annuity or a government-issued savings account.
But many people are hesitant to take up the option, fearing that it will be a hassle.
Shukla said he has been able to find a family that can afford to give their children a government annuity.
“In our study, we found that about 25% of those who could afford an annuation were not prepared to do so.
They were afraid that they would be asked to sign a new document.
And this fear is still there in our society,” he said.
There are also concerns that the new scheme will only be available for the poor, given that it is a government program, and will not help people who are not poor.
“The government is trying so hard to help poor people to save, but they are still going to fail,” Shukka said.
“And if they do, it will also hurt the poor.”
Modis move comes as the country’s economic growth has slowed to a crawl.
While the government is spending billions of dollars on infrastructure, a recent report by the World Bank estimated that the country is on course for a 6% decline in growth in 2019.
India is a member of the BRICS group of emerging economies, a grouping of Brazil, Russia, India, China and South Africa, and is also the only country in the world to have a central bank that does not have a fixed-currency currency.
Analysts say the Modi Government is hoping to lure the poor to the banking sector, which accounts for half of India’s total exports, by making it easier for them to get money.
Critics say that while this government has a mandate to help the poor improve their economic situation, it has not done enough.
“It is not the government who has made the decisions.
The decision-making process has been taken by the banks and big financial institutions,” said Ashish Joshi, a senior economist at the National Institute of Finance.
Many analysts are worried that this government will only do damage to the economy if it does not invest in the infrastructure it promised.
“If the government cannot afford to spend the money it has promised, there is no point in investing in infrastructure,” Joshi said.
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