Indicating his desire for the Reserve Bank to cut interest rates at its monetary policy review next week, Finance Minister Arun Jaitley has said he wants “what everybody wants”. The government has done its bit by sticking to fiscal consolidation path to contain deficit at 3.9 per cent of GDP this fiscal and further cut it to 3.5 per cent of GDP in the year beginning April 1.
Also, the government has lowered small savings interest rates to make room for lower lending rates. “I want what everybody wants,” he said when asked what his expectations were from RBI Governor Raghuram Rajan at the April 5 monetary policy review.
Jaitley said the small savings interest rates had to be cut as they were “extraordinarily high” which were leading to high lending rates. Given that inflation is around 5 per cent, high interest rates could make the Indian economy sluggish, he added.
The RBI is scheduled to unveil its first bi-monthly monetary policy of 2016-17 on April 5 amid clamour from India Inc for up to 50 basis points cut in rates to boost industrial output and growth. Rajan had earlier cautioned against any deviation from the fiscal discipline path.
On government’s decision to stick to fiscal consolidation path in the Budget despite needs for increased public expenditure, Jaitley said, “I think we were watched very closely… in a low price regime, you say though I am the fastest growing economy, oil prices suits me but I can’t still manage my expenditure, so I am increasing fiscal deficit.”
The government had deviated from fiscal deficit roadmap last year. “But you cannot do it year after year. I am glad we stuck to 3.5 per cent because the world at least has taken our decision very positively,” he said.
Asked if RBI would respond to government decision to stick to fiscal consolidation roadmap with a rate cut, he said, “Why don’t you wait for week.”
Retail inflation, as measured by the Consumer Price Index (CPI), rose 5.18 per cent, while wholesale price (WPI) based inflation was (-)0.91 per cent in February.