FM Arun Jaitley pitches for interest rate cut ahead of RBI policy

Jaitley said the government has stuck to fiscal deficit commitments and that inflation has been under control

Finance Minister Arun Jaitley argued on Monday for an interest rate cut, a day ahead of the Reserve Bank of India’s (RBI) first bi-monthly monetary policy meet for financial year 2016-17.

Addressing the annual session here of the Confederation of Indian Industry (CII), he said, “The government has stuck to its fiscal deficit commitments and inflation has been under control. Therefore, I do hope that this movement will continue to make our economy more competitive, with more competitive interest rates.”

He said the debate on key economic issues such as these rates should move in the right direction. “Take, for instance, responsible political groups taking a position to support high interest rates, something absolutely capable of making us a sluggish economy,” he said.

The government met its year’s target of keeping the fiscal deficit at 3.9 per cent of gross domestic product (GDP) in 2015-16. And, stayed on the earlier stated path of fiscal consolidation by targeting a deficit at 3.5 per cent of GDP in 2016-17.

While inflation dipped to a four-month low of 5.18 per cent in February, industrial production contracted for three straight months till January. In such a backdrop, RBI is widely expected to cut the policy rate on Tuesday. The minister said there were a number of challenges in a large and noisy democracy. It was important for institutions like government and industry to ensure debate on issues moved in the right direction.

On infrastructure, Jaitley said he expected private sector spending to pick up this year. Stressed private sector balance sheets meant that in FY16, the government increased its capital spending commitments by 30 per cent over a year before, to boost public spending in infrastructure. It has committed to massive spending this year, too, with Rs 2.18 lakh crore promised for roads and railways, and total capital spending budgeted at Rs 2.47 lakh crore.

On wilful default on loans, Jaitley said business was in a battle for credibility. “Some recent events haven’t added to their credibility,” he said, in a reference to the Vijay Mallya case. Jaitley added he knew an adverse business environment could lead to assets turning non-performing.

Delhi Chief Minister Arvind Kejriwal got a rap for supporting the jewellers’ stir against a new central excise duty. Jaitley said the city government should first abolish its value added tax on gold. And, noted the latter also taxes skimmed milk and almost every alternate food product.

Jaitley said it would be difficult to keep the proposed national goods and services tax as low at the proposed 16-18 per cent if luxury goods are kept out of its ambit and did not attract a separate ‘sin tax’ of up to 40 per cent. “So, the debate has to mature, on what is the impact of each of the steps on the larger interest of the economy itself.”