Negative interest rate and financial repression

Investments drive growth but how will investors get funds if the savings pile shrinks with no incentive to save in a negative interest rate regime?

Mr Pradeep Kukreja is all smiles these days. His bank has raised its deposit rates. Kukreja’s two-year fixed deposit matured last week. Instead of redeeming it, he reinvested it for another two years. This time, he will earn 6 per cent interest.

Since he prefers to earn cumulative interest, his actual earning will be around 6.14 per cent for the year. This means, his Rs 100 will become Rs 106.14 after a year. Right? Wrong.

Earning more than Rs 10 lakh a year, he would need to pay 30 per cent income tax on his interest income. That makes it Rs 104.30.