Cut in NSS profit rates

THE reduction of up to 2.5 per cent in the rate of return on the National Savings Schemes (NSS) announced by the government on Monday is the third such adjustment since January 2001 when it was first curtailed by two per cent followed in July the same year by a cut of another 1.5 per cent. So, in the last 19 months these once highly profitable schemes have lost a significant part of their shine. The immediate point of concern that comes to mind is the adverse impact of the latest cut on the incomes of small savers, especially the widows, orphans and pensioners. But if seen in the context of the declining trends in the official rates of inflation in recent years, the loss will not be too severe. In fact, the high rates of profit for the NSS were fixed when inflation used to be in the vicinity of 11-12 per cent. Today it is around 4-5 per cent. Most of the NS schemes now in vogue were floated by the government in the decade of the 1980s ostensibly to promote private savings. However, in actual fact the then military government of General Ziaul Haq which, for short-term political reasons decided to go easy on the rich and the affluent for purposes of tax collection, saw that the NS schemes provided it an ‘easier’ and ‘cheaper’ way of obtaining resources to finance its expanding non-development budgetary needs.

While the banks were mobilizing funds through the NS schemes at the rate 17-18 per cent, the government was borrowing these costly resources from the banks at the nominal rate of 0.5 to 1.5 per cent. Since it was all coming in so cheaply, the government’s appetite for bank borrowing kept going up, with the private sector left out in the cold in terms of its credit needs. Deprived of banking resources for its legitimate investments needs, the private sector went into hibernation, investing its own capital in the same NS schemes to protect it against galloping inflation. This had completely distorted the domestic financial sector and led to the virtual collapse of the banking sector by the beginning of the 1990s. The mismanagement and corruption that followed in the decade of democracy only made the collapse look more real. This is also the reason why the domestic borrowing during the 1980s looks so insignificant compared to that of the 1990s when the then elected governments had discontinued (in 1992 to be precise) the policy of borrowing costly resources of the NSS at nominal rates and instead made it obligatory for them to borrow at market rates to meet budget deficits.

Since then the burden on the budgets has been going up steeply, outstripping the economy’s capacity to service this burgeoning debt on its own and forcing the governments to borrow to repay past debts. It was only in 2001 that the official rate of inflation slowed down considerably in response to massive reductions in the imported component of inflation. The deepening economic recession has impelled the present government to do something about the distortions caused in the financial sector by the NSS that offered unduly high rates of return. The gradual reduction in the rates of return on national savings scheme, one hopes, will release pressure from the interest rates in the banking sector, thereby promising greater credit intake for the private sector and the consequent revival of investment activity. Meanwhile, hopefully, the banks would also bring down their high service charges which they now charge from their depositors to cover the ‘losses’ incurred on account of their inefficient management practices.

Squandered opportunities

A RECENT report commissioned by the United Nations Development Programme offers a scathing indictment of the policies pursued by a number of Arab nations over the last two decades. What is unique about the Arab Development Report 2002 is that it was written by a team of Arab experts after 18 months of extensive research. Unveiled at the Arab League headquarters in Cairo, the report focuses on 22 nations spanning the entire expanse of the Arab world, from the Maghreb to the Gulf states. The report’s main conclusion is a depressing one: that most Arab states have squandered the wealth generated by their massive oil revenues. The disturbing corollary is that if the Arab world does not take urgent action to pursue more equitable social and economic policies, there could be major social and political upheavals in store for them in the coming years.

The report claims that the per capita income growth rate in most of the countries covered was abysmally low; the average for the 22 countries over the past two decades was a mere 0.05 per cent, the lowest in the world after sub-Saharan Africa. The report claims that, “oil revenues are not always reinvested productively in the country, let alone region. And when such revenues are used in physical capital formation they contribute little to growth.” The report is most critical about the lack of movement towards extending political freedoms, the low status of women, and declining educational standards. The report, does, however, point out certain areas where progress has been made. Over the last two decades, most governments have succeeded in raising life expectancy, cutting the infant mortality rate and reducing the extremes of poverty. However, the lack of freedom and opportunity, combined with the growing gap between the rich and the poor, remain serious obstacles to progress. The Arab world must heed the valuable advice contained in this report if it is to move forward to build a more vibrant and equitable society, free from internal social and political unrest and strife.

Seeking Mandela’s intercession

ONE must welcome reports that the International Cricket Council may ask Nelson Mandela to persuade Pakistan and India to resume cricket ties. Actually, Pakistan does not need any prodding on this score, for it is India which refuses to play cricket with Pakistan. Islamabad has repeatedly asked New Delhi to resume cricket ties. Its argument has been simple: let us not mix politics with sports. India, on the other hand, brings in the Kashmir issue, accusing Pakistan of “cross-border terrorism” and, on that pretext, declines to play cricket. Surprisingly, this boycott is confined only to cricket, for officially India has indicated more than once that it is prepared to play other sports with Pakistan — hockey or squash, for instance. The reason, perhaps, is that Pakistan often does better than India in cricket. Which is not to deny the reservoir of cricket talent India has, including such giants in international cricket as Kapil Dev, Sunil Gavaskar and Sachin Tendulkar.

The ICC’s idea to invite Mandela was taken up by the Asian Cricket Council in London on Sunday. The two councils are aware of the tremendous damage that India’s boycott has done to international cricket. The boycott has upset the ICC’s ten-year Test calendar and has cost millions of pounds in lost revenues that would have accrued from sponsors and TV channels. The South African legend has remarkable achievements to his credit, and it would be great if he agrees to mediate in this and help revive cricket between the two nations. He is a friend of both Pakistan and India, and one hopes New Delhi will listen to a man who by any standards is one of the twenty-first century’s greatest living figures.