Current global macroeconomic conditions and Indian small saving schemes

Nations should not implement policy restraint too early as the global economy has yet to enter a recovery phase.

Signs of stabilization in their economies, G-8 finance ministers have decided to ensure that such trends emerging in the global economy should be nurtured and asked the IMF to study exit strategies to unwind their hefty stimulus packages.

On macroeconomic conditions, the ministers recognized that the coordinated policy action implemented so far has borne some fruit, citing a recent rise in stock prices, a decline in interest rate spreads and improved business and consumer confidence.

There are signs of stabilization in our economies, said a joint statement of the ministers from G-8 countries – Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

Each country has the feeling that the economy is bottoming, Kyodo news agency quoted Japanese finance minister Kaoru Yosano as saying in the southern Italian city last night. But the ministers agreed not to relax their ongoing efforts is until the global economy moves back onto a self sustained recovery track and called for vigilance over persisting downside risks such as worsening employment trends.

Even after output growth begins picking up, unemployment may continue to increase, the ministers said adding that the countries will take all necessary steps to ease the impact of the crisis on employment.

G-8 ministers discussed appropriate strategies for how to find a way out of big fiscal spending once their economies recover. They, however, noted that the framework for unwinding the unusual measures taken so far to fight the global economic crisis should vary from country to country.

Nations should not implement policy restraint too early as the global economy has yet to enter a recovery phase despite recent signs of improvement. The G-8 statement’s call for charting the future course for the restoration of fiscal balances, saying financial and economic recovery will be stronger and more sustainable if we make clear today how we get back to fiscal sustainability when the storm has finally passed.

After the G8 review of economy at the Global level coming back to India Small saving schemes are back in vogue.

Investors Flock Back Following Deposit rate Cuts By banks & Corporates. With bank and corporate deposit rates falling, investors are rediscovering an alternative avenue to park their funds.

According to investment consultants, people are once again showing interest in government backed small saving schemes like National Savings Certificate, Kisan Vikas Patra and Government of India bonds, among other things. There is also a clamor among retired people to invest in the government sponsored Senior Citizen Saving Scheme.

People had forgotten about the existence of these small saving schemes for sometime. However, since banks deposit rates have come down substantially, there is a renewed interest.

Investors are also forced to look into these schemes as corporate deposits, which paid better than bank deposits, which paid better than bank deposits, have either had their interest rates slashed or companies have stopped accepting deposits altogether.

Banks paid interest rates as high as 10.5% till recently. However, they have begun reducing rates after liquidity improved dramatically in the banking system. Most banks offer around 7-8% interest on fixed deposit these days. Some companies too used to offer higher rates of around 11-12%.

Some experts also point out that the newfound favor for safer or preferably government backed returns also could be the reason for the renewed investor demand for small saving schemes.

There was some kind of anxiety about the safety of one’s money till recently because of the uncertainties in the global economy. The sentiment has improved marginally after the stock market started showing signs of revival.

However some people especially retirees are still concerned about the safety of their money. That is why they prefer government schemes like government of India bonds and Senior Citizen’s savings Scheme.

The Senior Citizen’s Savings Scheme particularly appeals to retirees as it offers a higher interest of 9% say investment advisors. It is now once again in favor because it offers 9% interest. And it seems investors will have to be happy with these small saving schemes for sometime, as experts don’t think banks or companies are likely to up rates anytime soon.