Jaitley pitches for a rate cut ‘for a good fillip to economy’

A fortnight before the Reserve Bank of India’s (RBI) monetary policy review, Finance Minister Arun Jaitley has pitched for lowering capital costs to give a “good fillip to the economy”, hinting at the need for an interest rate cut.

“I am quite clear in my mind that the cost of capital has to come down. Inflation has moderated, global fuel price has eased. Therefore, if the RBI, which is a highly professional organisation, in its wisdom decides to bring down the cost of capital (it) will give a good fillip to the Indian economy,” he said, in his address at the Citi’s Investor Summit. The RBI is scheduled to review its monetary policy on December 2.

Later, RBI Deputy Governor SS Mundra, who was also present in the same function, said that the central bank revises rate, but not on “popular demand. It changes when there is a clear conviction”.

Interest rates are the most important monetary tool to check inflation and currently, the RBI is taking retail inflation into consideration to revise rates, better known as repo rate (the rate at which banks borrow money from the RBI), which at present is at 8 per cent, unchanged since January. The good news is that both retail and wholesale inflation rates are at new lows. While retail inflation is at 5.52 per cent, WPI inflation is at a five-year low of 1.77 per cent.

Jaitley’s pitch comes at a time when the Government is pushing aggressively to accelerate the growth rate and has announced various measures. The Finance Minister specifically talked about the Goods and Service Tax (GST) and Insurance Amendment Bill.

He said he was expecting the Insurance Amendment Bill to be passed in the forthcoming Winter Session of Parliament, adding that he was in touch with the Parliament Select Committee, which is currently vetting the Insurance Bill, and would persuade it to give the report at the earliest.

On GST, Jaitley said he was in discussions with the various State Governments and most of the contentious issues had been resolved. He said he will also apprise the Empowered Committee of State Finance Ministers of the draft Constitution Amendment Bill on GST before introducing it in Parliament. GST has already missed several deadlines after the initial deadline of April 1, 2010. Now, the tentative deadline is April 1, 2016.

Talking about the liberal FDI regime in key infrastructure sectors, the Finance Minister stressed the need to take quick decisions. “Merely opening yourself out for international investor is not enough. Merely saying we will have a red carpet is not enough. The system within must be decisive, you can’t have investment coming in and stuck in the want of some clearance or some tax policy,” he said.

Jaitley said the targets fixed for disinvestment in the current financial year are quite ambitious, but was hopeful they would be met.

“We have a very ambitious disinvestment target this year. I hope we will able to reach close to that,” he said, adding that road shows are being held in many parts of the world. The Government has set an ambitious target of ₹43,425 crore to be mopped up from PSU disinvestment in the current fiscal.

COMMENT NOW