A question by default lingering us at the offset of every month ; where can I invest my residual Salary? India has a plethora of investment avenues, quite a few with sovereign backing. Indeed, every Indian citizen is lucky! The GoI (Government of India) borrows from its own people. The conservative mindset of the country makes it advantageous for the GoI to plough in back from its own people. To tap the currency notes stealthily safeguarded in utensils and penny banks, the GoI has an investment avenue for almost all income sects. Nonetheless, Privately managed investment avenues are omnipresent. Developed countries, tax havens and cash-rich countries discourage the concept of income getting blocked in savings. Per se the cycle is vicious. Without savings, investments are directed in the dark and follow a path of their own, rather than getting prioritised. Say for instance, presume a number exceeding a million investors have 10k per mensem and are left with unalluring investment abodes; their savings get spent on their personal priorities rather than the economy’s. Developed countries can afford the brunt of not channelized investments, but developing ones can ill afford it. Sustaining the previous instance, presuming attractive investment avenues are offered with Sovereign backing, the government taps the savings equivalent of 1 Million *10K *12 (approx) a year, it can be channelised in the best interests of the economy as per GoI discretion. Sovereign backing of investment avenues comes with double-edged benefits:
From investor’s perspective – Returns and principals are guaranteed, absolutely zero-risk. From GoI’s perspective – abbreviated dependence on foreign borrowings, cost of borrowings stays fixed and its solely GoI’s prerogative. The corner stone aspect is the that, the borrower(GoI) decides the rates at which it borrows. Try comprehending it vis-à-vis “Bargaining power of buyers” as described by Porter. Visualise a situation wherein we approach a bank for a loan, do we have a say over the rate of interest??
Ranging from EPF (Employee provident fund), ESI (Employee state insurance), Nps (National Pension Scheme), RD (Recurring deposits) and NSC(National Savings certificate), in fact funds from LIC (Life Insurance corporation) gets invested in PSU(Public sector units/ Banks) which in turn doles outs returns to the government in the form of dividends. For instance, LIC was the white knight during the IDBI crisis. In the aforesaid manner, predominant quantum of savings in the economy gets tapped by GoI, leaving abbreviated scope for Private companies to tap these. The flush in for Private sector happens predominantly through the Banking channel, the majority of which are PSB (public sector banks). So, Indian currency notes stay buoyant in the economy for a while and gets back to its solemn owner. How much & how long should the buoyancy be, is decided by the GoI in a revolving-door relationship with RBI (Reserve bank of India). A bi-monthly congregation termed as the MPC (Monetary Policy Committee) meet decides it.
We might hold xxx nos of Rs 2000 denomination, albeit the intrinsic owner being RBI. The intrinsic owner decides the value of each denomination. Its inevitable to forget the NULL valuation for certain denominations in November 2016. To conclude with, What ever gets printed at RBI’s Mint flows back to the treasury at some point of time or the other. We hold, but not own the currency.