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WINDOW CLOSED

Although it shows some recent signs of moderation, India’s addiction to inflation is ages old. For decades, it has experienced higher rates of price rise than industrial countries. Some official types might assert that this is part of India’s proud status as a perpetually developing country. But there is no inevitable correlation between being undeveloped and inflation-prone. Latin American countries, for instance, used to revel once in triple-digit inflation, but have become far more sober recently. Only India shows no signs of sinking into sobriety. The government recently admitted this, and offered the common man a means to defend himself against its profligacy: Reserve-Bank-issued index bonds, for the second time in its history. But it kept the issue open for just a few days: before the common man could rush to the bank, calculate how much he had to spare after allowing for inflation, get the application forms, fill them out in black or blue ink and submit them, he found the window closed. He was bound to ask: why is the Reserve Bank of India so good at closing windows? Why can he not buy index bonds at his convenience? Why does there have to be a window? Why cannot banks offer indexed deposit accounts?

Such are the thoughts he would have looking out of his window. If he looks a bit further, he will find that his Arab neighbours have another opportunity: they can buy sukuk bonds. These are like equity, but better. Indian promoters give him whatever dividend they feel like on his shares. They are measly as a rule; some who think too much of themselves do not pay dividends at all, expecting him to live on capital gains, which have been immensely variable in recent years. Muslim entrepreneurs abroad are not that sniffy: they pay their investors a share of their profits. He would ask himself why no one was prepared to sell him sukuk bonds in India. He would be told by shocked government types that this is a secular country. But if a Christian country like Britain has no qualms about issuing sukuk bonds, there is no reason for less scrupulous Indian governments to hesitate.

They should not only broaden his options; they should let him in on the racket they run with the banks they own. They issue bonds, which they sell to their own banks; the common man has no chance to invest directly in them. He can do so through mutual funds, but there is no reason why he should to pay their fat fees. Banks are sitting on piles of government bonds; the investor would like to know why he cannot open a bank deposit in bonds, as he can today in cash. After all, cash is only money borrowed by the government at zero interest. Let there be justice between rich banks and poor investors.