New Delhi: Pitching for a easier monetary policy ahead of the RBI meet, the finance minister Arun Jaitley on Monday warned that high interest rates can make the economy sluggish. “The government has stuck to fiscal deficit commitments and inflation has been under control. Therefore, I do hope that this movement will continue in order to make our economy more competitive with more competitive interest rates,” said the minister during his address at the CII Annual session.
Mr Jaitley pointed out that the debate on crucial economic issues, like interest rates, should move in the right direction in India, which is a “large and noisy democracy”. “Take for instance responsible political groups taking a position to support high interest rates for something which is absolutely capable of making us a sluggish economy,” he said. The RBI will hold its first bi-monthly monetary policy review for 2016-17 on Tuesday.
The government has stuck to fiscal deficit consolidation path, and has set the target for the current financial year at 3.5 per cent of GDP. This is expected to put pressure on the RBI to cut interest rates to give economy a boost. The finance minister said there are a number of challenges in a large and noisy democracy and the most important for government and industry is to make sure that the debate on issues moves in the right direction.
This will “enable Indian society as the world’s largest democracy to add maturity to that debate,” he said. As regards retired persons who depend on interest income, he said their issues could be addressed by pension funds, which offer best returns.
FM said national pension scheme is providing attractive returns, adding “people will have to look at these products”. In the long run, deposit and lending rates should come down in order to make the economy more competitive, he said. “The movement in last one year, as far as the interest rates have been concerned, has been downwards,” Mr Jaitley said.
