Advantage Outsiders
With the balance tilted against it, the Taliban regime will soon find itself vanquished.

Lull Before The Storm
Amid calls for a quick and decisive end to the conflict, Afghanistan has been abuzz with talk of an imminent Northern Alliance ground war against the Taliban.

History's Pointers
The Soviet Union's 10 years campaign in Afghanistan — a conflict that led to a humiliating withdrawal and, some say, its eventual breakup
— can be a learning experience for
the US.

ECONOMY: SMALL SAVINGS

Where Do We Save, Dr Jalan?

Falling interest rates, shaky institutions and shrinking options leave small investors confused

Surfing through news channels on TV on October 22, Ram Verma halted at the announcement of a cut in the bank rate as part of the RBI's credit policy review. Verma has no particular interest in the central bank's credit policy. Nor is he an economist worried about high rates of interest cutting into the competitiveness of Indian industry. He is a retired insurance officer living on the interest earned by his savings. Each cut in interest rates reduces his monthly income. "The cut in interest rates may or may not help the Indian economy reach new milestones in productivity and growth, but it has certainly impoverished me," laments Verma.

BALANCING ACT: Jalan is torn between the interests of business and small investors

Mahesh Prasad who retired from the PTI in 1994 without a monthly pension is in a similar bind. Three years ago he invested a large chunk of his savings in the Post Office's Monthly Income Scheme at an annual interest rate of 13 per cent. When the scheme matures in two years, he will be able to reinvest only at 9.5 per cent or less. "At a time when prices are rising-though at a slower pace than a few years ago-my monthly income would be falling," remarks Prasad. The half a percentage point cut in the bank rate (the rate at which the RBI lends to banks) announced by RBI Governor Bimal Jalan is a signal for an across the board reduction in interest rates. Bank deposits account for the largest share (30 per cent) of financial savings of households and interest rates on deposits of different maturities have come down by an average of 2.5 percentage points in three years.

The fear of falling returns cuts across generations. Nitin Seth, in his mid-30s and managing director of a startup technology company, is worried too. "Saving opportunities are vanishing. The options I was comfortable with have either disappeared or aren't lucrative anymore," he complains. Unlike Verma, Seth has the qualification and ability to study different saving options, but he won't do that because of inertia. "I don't have the time and inclination to continuously look for newer and complicated saving options," he says. The result: much of his savings simply lie in bank deposits.

Falling interest rates are only one cause of the growing despondence among middle-class savers. A bigger, but less expressed cause of worry is the shrinking of saving options. Real estate and gold have ceased to be tools of investment. Rightly so. In the new economy, savings in financial assets (deposits, bonds, mutual funds, stocks) is more productive than savings in physical assets (property, gold).

But the financial instruments that replaced physical modes of savings in the 1990s have lost lustre. The BSE Sensex has shed more than 1,000 points since January. Annualised returns on equity-based schemes were -34.29 per cent and on balanced funds -18 per cent on September 30, 2001. Returns are also falling on tax-saving schemes. Till 1998 investments in National Savings Certificates doubled in six years. Now it takes seven years and three months. Interest rates on deposits in the Public Provident Fund and LIC's Bima Nivesh is 2-3 percentage points lower than their 1998 level. UTI's schemes like ULIP and MIP do not offer assured returns anymore.

Compounding the fear psychosis is the crash of the US-64 in July. "Part of the uncertainty among the saving community stems from the fear of failure of financial institutions. People are asking me if money is safe with the LIC and banks," points out Gurinder Singh, CEO of Parasmoney, a portfolio management company based in Delhi. "At least for the time being, there is a loss of faith in the financial system," comments Dhirendra Kumar, chief executive of ValueResearch, which tracks mutual funds in India.

MetroScape

Looking Glass

Mumbai Restaurant:
India Jones

Mumbai Puppetry Festival: Toccata

Bangalore Restaurant: Chung Wah

Kolkata Exhibition : Life Is Beautiful