IN this country which lacks a comprehensive social security system, the small investors, especially the retirees, have started feeling that they are also the victims of the so-called economic reform measures of the government. During the nineties, taking the plea that the financial reforms were necessary for the healthy growth of investment activity in the country, the government first put an end to the system of administered interest rates and then began intervening effectively on behalf of the private sector to force a decline in the interest rates.

Also assuming the role of the resource mobiliser for the private sector, it created conditions whereby even the risk averter  small investors were driven to the stock market. Many who resisted going   to the volatile stock market which is constantly manipulated by the likes of Harshad Mehta, Hiten Dalal and Ketan Parekh, joined US-64 scheme of the UTI considering it a safe bet. But they are now shocked at the declining rates of interest and the UTI fiasco. They are also amazed at the role of the government which they now realise has consciously assisted the financial institutions to plunder them for the benefit of the private sector.

Most of these small investors, politically na�ve as they are, do not realise that the policies of the government, behaviour of the ministers and bureaucrats and the actions of CEOs in the public sector units are invariably determined by the class character of the state. Therefore, if the policies of the government and the state owned financial institutions are spelling doom for the multitude of the retired people in the country, particularly those living on fixed income, then it  is not at all surprising.

Over the past five years, earnings from investments in bank fixed deposits, post office monthly income plans, financial institutions bonds and the US-64 units have been reduced to less than one half if we take into account both fall in return on these financial investments and the inflation. Until September 15, the bank rate of the RBI was 12 per cent. In less than four years it has been brought down to 7.0 per cent. This policy of the RBI has led to a steady decline in interest rates. For example, interest rate on bank fixed deposit for three years or more declined from 13 per cent to .25 per cent. The yield on units of UTI which was 13.5 per cent in 16-7 has fallen to less than 7.0 per cent. The story is the same with respect to other financial investments. Now there are simply no options for the retired people. The so-calle d reform measures in the financial sector have brought the entire economy to the low interest rate structure not seen earlier at least in this country.

In defence of this low interest rate policy the  plea of the government has been that this was a necessary condition to induce investment and make products of Indian companies internationally competitive. On close scrutiny this argument is not sustainable. Probably the economic advisers to the government have not unlearnt all the Keynesian economics which they must have studied in their college days. If they still remember the basics of microeconomics then they must know that the current slowdown in the economy is due to lack of effective demand and lowering of the interest rate will do little to induce investments. The liberalisation measures of the nineties are in fact responsible for the existing economic malaise. These measures have led to concentration of incomes, mostly black, in fewer hands. The government probably had hoped that with growing income inequalities, enough demand would be generated by the minuscule section possessing almost whole of black income. But this was not to be. Widespread poverty, growing unemployment and declining real incomes of a sizeable section of the middle class arrested growth of the domestic market. Thus the unstated black income-led growth strategy completely failed. The Indian bourgeoisie and its government at the centre therefor e pinned hopes on the international market, where in the period of global slowdown no policy seemed to be working. The chorus thus began: 1. Lower the interest rates to lower the cost of production. 2. The assumption was that this will encourage exports and thus solve the problem of effective demand. This policy being patently wrong, was destined to fail. Therefore, now it should not surprise anyone that export targets have been lowered.

Now in official circles there is some questioning of the effectiveness of interest rate cut. The RBI deputy governor Y V Reddy has recently admitted that interest rate as a policy instrument is far from effective. But the damage has already been done. Millions of retire d people and other small investors have already been ruined to provide cheap credit to corporates who lacked capability to raise capital in the primary market.

As far as UTI is concerned, the government has used time and again small investors funds with this financial institution to bail out brokers and thereby stock exchanges. Only a recent example convincingly proves the involvement of the government in the management  of the UTI. In a week in March this year when the stock market crashed, some of the Calcutta Stock Exchange (CSE) brokers, most of whom were in tandem with the notorious Ketan Parekh in rigging stock prices, were in difficulty as they could not meet their payment obligations. The CSE thus resorted to auctioning of the securities of these brokers to avoid default. But there were no buyers. The ministry of finance at this stage is believed to have verbally instructed the UTI's top brass to intervene and buy out the shares auctioned by the CSE. In this bail-out exercise, the UTI purchased mainly four scrips --- Zee Telefilms, Global Tele Systems, DSQ Software and Himachal Futuristic Communications Ltd. All four scrips have been favourties of Ketan Parekh. The UTI was a net seller of all the four scrips in January-February 2001 because of the downhill journey of the  stocks. But this was not the concern of the government which was more  interested merely in the bail-out of cheats and crooks, utilising the money belonging to small investors including retired persons. Incidentally,  currently all the stocks are trading at much below their March 2001 prices. This is not the only case of stock brokers bailout with the small investors money. The UTI's recently announced proposed offer to provide  relief to small investors has added insult to injury. These cases are just illustrative of the government's callous attitude towards the small people who have started learning the hard way that the present government  represents the interests of only Ambanis, Parekhs and their likes and its economic policies are a recipe for common people's disaster.