The "tax bonanza" provided to the middle classes in this year's budget has created a frenzy. Many have referred to this as a "middle-class budget" and the media has praised the promise to eliminate taxes for individuals earning up to Rs 12 lakh annually.

Given that less than 2% of indians appear to pay direct taxes, there are undoubtedly grave worries about whether the economy, in its current state, can be resurrected just with this relief for a small portion of the middle classes. Putting that aside, however, it is funny to see how the middle classes react to such actions. A one-time offer like this makes people happy, and the media naturally encourages it, but the holes that are burned into middle-class pockets over decades receive almost no response. Let's examine the banking industry in more detail.
 
The majority of bank depositors are members of the middle class. The majority of the operating capital that enables banks to function is made up of these deposits. In fact, the double-digit rise in bank deposits is a source of great joy for this year's Economic Survey. Nevertheless, the declining interest rates on middle-class depositors' savings bank accounts have been a shortchange over time.
 
Thomas Franco, a former general secretary of the All india bank Officers Confederation, states that interest rates on savings bank accounts have decreased from 5% in 1977 to 3.5% in 2003 and now to 2-2.5%. "If the middle classes were paid their fair share of interest at say 5%, they would have earned near about Rs 1.8 lakh crore more last year." The finance minister claims to have "foregone" Rs 1 lakh crore with the tax refund she spoke about, although this is significantly more than that.
 
According to the Economic Survey, fixed deposits make up around 60% of all bank deposits, and their proportion is increasing. The real profits lost by the middle classes are enormous when one considers that interest rates on FDs have been cut in half over the past 20 years.
 
The true tale of missing non-performing assets In assessing the government's banking performance, the Economic Survey, which was made public the day before the Budget, praises the "consistent improvement" in bank profitability. The decline in Gross Non-Performing Assets (GNPAs) to a "12-year low" is celebrated. However, the scope of the enormous write-offs being planned behind the scenes is not mentioned in the Economic Survey.
 
The establishment of Asset Reconstruction Companies (ARCs), which were established to enable banks to liquidate their bad debts and improve their balance sheets, is one tactic to make these bad loans vanish. In 2023-24, the percentage of bad loans sold to ARCs decreased from 9.7% of all bad loans (also known as GNPA) to 5.8%. Nonetheless, the proportion of foreign banks and PSBs has grown. Foreign banks and PSBs offered substantial reductions on problematic loans in 2023–2024.
 
In Figure 1.b, the price the ARCs paid to purchase these loans (yellow bars) was far less than their true worth (orange bars).
 
 
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SIBY JEYYA

07/02/2025 08:51 AM