A little news item today says that household savings has dropped from 12.1% last year to 9.7% this year which will impact growth. The last time it it dropped below 10% was in 1997-98 when the economy grew just 4.3%. One reason why people are saving less is because of the scorching rate of inflation which shows no sign of coming down in spite of rising interest rates. The Food Corporation will need Rs 853.6 billion to buy stocks of which Rs 677.4 billion will be for subsidised sale. To pay for the rising subsidy bill the government will need to borrow more and will not be able to contain its deficit to 4.6% that it hoped to achieve. The government is desperately seeking new ways to raise taxes which, in turn, raise inflation and cut consumption. The RBI needs to increase interest rates until property prices drop by around 70% which will remove black money from the system and registration tax and stamp duty on sale of properties need to be lowered to 1% as in other countries. This the politicians are unwilling to do because state governments are bankrupt and property taxes are a huge source of income. Also companies complain that high interest rates will increase borrowing costs and impact investment. No it will not. If the RBI brings down inflation to 2-3% and then maintains rates high enough so that property prices increase by just the same rate it will increase consumption by eliminating inflation. A stable borrowing cost will enable businesses to plan long time without the worry of yo-yo rates. Savings will jump as returns will be positive. The other imperative is to reduce population so as to reduce the subsidy burden. Else remain poor.