5% FD rates or less in 2025?

I am sure many of you may be still staring at the heading , if not falling off your chairs! And probably many of you are convincing themselves asking 'who the heck is this author'?

Relax friends. I am not living on another planet. And it is the 'experience' of the west which is likely to be repeated. An economy which wants to grow fast and maintain its position as the fastest growing economy in the world must 'live' with low interest rates. The developed countries are a glaring example of this. Development comes at the cost of low interest rates .

If you thought that the US always had low interest rates , think again! In 1980 the Federal rate was 20% !! (no there is no typographical error) . An in the last 30 years the rates have come crashing down to near zero!

In the 1980s the US was approximately a USD 2 trillion economy and in the next ten years the GDP expanded to about USD 5 Trillion. In the same period the interest rates which averaged about 15% in 1980s almost halved to about 7.5%. In the subsequent 25 years (1990 to 2015) a rapid rise in US GDP led to a fall in interest rates to the now near zero levels!

CURRENTLY India is - in terms of GDP - at USD 2 trillion and it is expected that it will achieve the USD 5 trillion mark in the next 10 years .

Interestingly Indian GDP (in dollar terms) has more than doubled every ten years and the rise from USD 1 trillion to the current USD 2 trillion has come in seven years.

(Source : Tradingeconomics, computations by Rajiv D Khatlawala)

If one takes the experience of the US , it will not be a surprise if we see sub-5% rates in 2025. Whether it will happen sooner or later is anyone's guess but one thing seems sure - lower interest rates give the necessary boost to economic development and if we wish India to grow , we cant simultaneously have higher interest rates (or FD rates)

So friends, colleagues and countrymen - brace yourself for much lower FD rates in coming years !!!

CA Rajiv D Khatlawala