EDITORIAL : THE HINDU, INDIA

Eliminating endosulfan

The decision of the Stockholm Convention on Persistent Organic Pollutants to include the pesticide endosulfan in the list of chemicals scheduled for elimination at the global level is a positive step. For the controversial insecticide to be replaced with benign alternatives, though, it is critical that official policy makes the development of low cost substitutes a priority. India has done well to reiterate its commitment to the phasing out of pollutants, which includes polychlorinated biphenyls, under the Convention. It has come up with a National Implementation Plan to cleanse the environment, while admitting that POPs have been found in human and animal blood and tissues, in the environment, and in foods. Given the evidence linking such chemicals to cancer, birth defects, diminished intelligence, and reduced immunity, there is a strong case to adopt the precautionary principle on the use of endosulfan. It is indeed significant that the World Health Organisation has classified this organochlorine insecticide as “moderately hazardous” and the POP Review Committee of the Stockholm Convention recommended its elimination on the ground that it could have adverse effects on human health and the environment.

Under the terms of its accession to the Stockholm Convention, India has the option to ratify the decision on endosulfan whenever it chooses. But, given the strong public sentiment against its use, especially in Kerala where aerial spraying of crops by the Plantation Corporation is seen as the cause for a rise in mental retardation, birth defects, infertility, and growth abnormalities, the central government should take a view sooner rather than later. A window of 11 years is available to replace endosulfan with safer alternatives based on the exemption provisions of the Convention and the date of implementation, but that is unacceptably long. Moreover, if the harmful effects of the insecticide are indeed true, as several studies suggest, there has to be urgent action at the national level. Equally important is the need to fully rehabilitate the people of Kasaragod in Kerala who have been affected by the indiscriminate use of the insecticide in cashew cultivation. The wider effects on the environment in the affected region, as recorded by the Salim Ali Foundation, underscore the need for a good remediation plan. Containing the pollution requires a systematic study of the soil, air, and water quality. Recovery of the regional ecology would be aided in no small measure by sparing further chemical stresses, and wherever feasible, by switching to organic methods. India has stopped the use of DDT in agriculture and, with sufficient will, can do the same with endosulfan.

Freeing the savings bank rate

A Reserve Bank of India discussion paper has come out in favour of deregulating the interest rate on savings deposit, the only deposit interest rate that is still administered by the RBI; it has remained unchanged at 3.5 per cent since March 2003. Every other kind of deposit stands deregulated, the process, which started in the early 1990s, having been largely completed by October 1997. Now, banks have the freedom to set the interest rates on those deposits and loans. Deregulation has spurred competition in the financial sector, imparted greater efficiency in resources allocation, and strengthened the transmission mechanism of monetary policy. If the SB rate has not been deregulated so far, it is because of a belief that the regulator would take better care of the interests of these depositors, who are mostly from low income households in rural and semi-urban areas. This argument has lost its edge today because a wide range of investment and deposit options have been made available for all types of customers. In fact, if banks are allowed to fix their own rates on SB deposits, they might choose to reward all their depositors with higher rates. Innovation will also get a boost in a decontrolled environment. All these are extremely relevant in the context of the current policy thrust towards financial inclusion.

The other major argument against freeing the SB interest rate comes from the banks. Savings bank deposits constitute more than a fifth of the total deposits and more than 84 per cent of them are from households. Although these accounts are used for transactions, empirical evidence suggests that a significant proportion remains as savings. Over time, many public sector banks have come to depend on the stable core of savings deposits to bridge the asset-liability mismatch in their balance sheets. In a decontrolled scenario, this cannot be taken for granted as it would be unrealistic to expect SB depositors to stay on if their bank does not match the interest rate or the quality of service offered by others. Yet the view that there will be unhealthy competition among banks leading to a reckless bidding for savings deposits is not valid. After all, term deposit interest rates have been freed for a while now and, barring isolated instances, the deposit rates tend to converge within a narrow range. Considering the generally high rates of inflation, the SB interest rate has yielded negative real returns over a fairly long period. For the common man, the SB deposit account is the first, and often the only, point of contact with the banking system. It is time that a major disincentive in the form of low, administered deposit rate is removed.