Real Interest Rate turning Negative and its implications

What is a negative real interest rate? 
The real interest rate is the effective rate after adjusting for inflation and is considered a true measure of the cost of funds for the borrower or the return to the lender. It is calculated approximately by subtracting the rate of inflation from the nominal interest rate. When inflation is higher than the interest rate, the real interest rate becomes negative. If the one year interest rate is 8% and average inflation over this period is 10% then the real interest rate is negative 2%.
Implications of a negative real interest rate 
Savers or lenders are losers in a negative real interest rate situation. Take the same example of bank deposit rate for one year of 8% and the average rate of inflation over this period 10%. At the end of one year, you are left with Rs 108. But what Rs 100 could purchase a year ago will now take Rs 110 to purchase, so your interest earning has failed to protect your saving, because it earned a negative rate of interest, the nominal rate of 8% was lower than the rate of inflation of 10%. However, the borrowers benefit in a negative real interest rate regime. The money used to repay loan will have lesser value than the original amount borrowed because of the high inflation. In this case, the borrower should have been paying back more than Rs 110 to give him a real return of money but he only paid Rs 108. This is how the idea of inflating debt away has come.

What is the situation in India? 
The widely followed measure of inflation in India, the wholesale price index, was 10.55% for June and is expected to climb further. The rate of interest on a tenyear benchmark government paper is about 8%. This implies that the difference between the long-term interest rate and inflation is about 2.5 percentage point, or a negative real interest rate of that much.

Is the negative real interest rate a concern? 
The real interest rates need to be seen over a longer period. The rate of inflation has been high in India in recent months, causing the real rate of interest to be negative. However, over a longer period the average inflation is likely to be much lower, even if we went by the wholesale price index. If the GDP deflator, a more comprehensive measure of inflation, was considered the inflation for the year would be lot less, which will give a positive real rate of interest.