Arun Jaitley questions high interest rates on savings

With private investment yet to pick up, Finance Minister Arun Jaitley on Saturday wondered whether it is desirable to continue offering high interest rates on savings that translate into higher cost of lending and sluggishness in the economy.

India, he said, has "peculiar" characteristics of having "quite high" percentage of domestic savings.

"Now, whether domestic savings are only to be used by such instruments which give you a higher return and create an interest regime, which is extremely costly and makes the economy sluggish. Higher returns are to be got from such instruments as funds, bonds, shares (that finance projects and economic activity)," he asked.

Speaking at a function here to unveil a commemorative postage stamp to mark 140 years of BSE, he said the essence of all economic activity is investment which is going to come from where resources are available.

"A lot of them have also an element of secured investment in them which can give people a very respectable return itself. That's the basis on which pension funds the world over have been functioning and I think these are areas of advances as we grow over the next several years and decades. More and more opportunities are going to come to us," he said.

According to Jaitley, Indian economy will need a lot of investment for a reasonably long period to bridge the infrastructure and industrialisation deficit that has existed for decades.

"And the starting point of all activity has to be investment, it has to be resource-raising, it has to be important companies in the private sector and sometimes PPP, which will ensure this deficit is met," he said.

The finance minister felt that in this context, BSE is an important institution.

"Last few years have seen India grow well, essentially grow well on the strength of enhanced public investment and FDI. The best of private sector in that development process is yet to be seen," he said.

Stating that absence of demand has been cited for lack of private investment, he hoped urban demand will improve.

"Since rain gods appear kind this year, there would be signs of increased rural demand itself and all these in turn would lead to opportunity for the private sector itself," he said.

This will lead to a lot more activity at institutions like BSE, he said, adding that the best of the two stock exchanges, BSE and NSE, is yet to come by.

"It is not to undermine what they have already done in the past, it's to prepare them for greater challenges in future. I'm sure BSE would get itself ready for their act," Jaitley added.