FM Calls for Lowering of Rates to Make Economy Competitive
Rules out review of excise duty on jewellery & calls for ethical approach to business
New Delhi: A day before the Reserve Bank of India reviews its monetary policy, finance minister Arun Jaitley called for lowering of interest rates to make the economy competitive while taking a dig at those criticising the decision to cut interest rate on small savings schemes. “The movement in the last one year as far as the interest rates have been concerned has been downwards,” Jaitley said on Monday, addressing Confederation of Indian Industry’s annual session.
The minister ruled out any review of excise duty introduced on jewellery, called for ethical approach to business in view of loan defaults and warned that tax adventurism will prove costly. “The government has stuck to the fiscal deficit commitments and inflation has been under control and, therefore, I do hope this movement will continue in order to make our own economy more competitive with more competitive interest rates,” he said.
Consumer inflation eased to 5.18% in February from 5.69% in January.
RBI is widely expected to cut the repo rate, the benchmark policy rate, by at least 25 basis points or 0.25 percentage points on April 5 along with announcing measures to ensure the rate cuts are passed on.
The repo rate is the rate at which banks borrow from RBI and is effectively the floor on interest rates.
In the run-up to the Budget, RBI governor Raghuram Rajan had cautioned against deviating from the path of fiscal consolidation. Last week the government said it had met the fiscal deficit target of 3.9% of GDP for 2015-16. Last month, the government slashed the small savings rate by as much as 130 basis points for some schemes, strengthening the environment for rate cut while inviting political criticism for the move.
On Monday, Jaitley called for a responsible political debate on such issues. The previous UPA government had decided to benchmark the interest rates on small savings to the yield on government securities to reduce the distortion they cause in interest rate structure.
While announcing this annual reset, the NDA government said it will benchmark rates more frequently every quarter. The sharp decline in market rates resulted in a large cut in small savings rate.
“Responsible political groups (are) taking a position which supports high interest rates, something which is absolutely capable of making us a sluggish economy,” Jaitley said. Retirees should be looking at PFs, he added.