Plan Panel Seeks Realistic Priority Lending Rates

The rate of domestic savings is slipping and this will have an adverse effect on economic growth. It is necessary to strike a balance between lending rates in the priority sector and deposit rates in order to attract more savings and curb inflation, Planning Commis-sion deputy chairman, Madhu Dan-davate, told Business Standard.

He agreed that the exercise would result in slight increase in lending rates in the priority sector in the short-term. But it was necessary to fix pragmatic interest rates in this sector in order to encourage deposit growth without making banking operations unviable.

Dandavate's remarks follow a statement from Prime Minister H D Deve Gowda advocating a decrease in lending rates for the agriculture sector. Gowda and finance minister P Chidambaram have also predicted that lending rates for all sections of economy will come down soon.

 

The Commission's deputy chairman said state governments and state agencies should be allowed greater freedom to raise resources in the market. The Centre has decided to transfer centrally-sponsored schemes to the states. But the states need the financial capacity to implement them, he said.

The government should build on the experience of the Ahmedabad Municipal Corpora- tion and the Konkan Railway project in tapping the bond market, he said. Article 293 of the Constitution dwells on the grant of permission by the Centre to state governments to access the market. But the Centre has been generally reluctant to grant permission on this score.

Dandavate said the country should not allow import of consumer goods at this juncture. We need to take a fresh look into the agreement with the World Trade Organisation. We cannot encourage more imports than what the country can afford, he said. Besides reducing the foreign reserve balance, import of consumer goods will also make the small industry sector unviable, he said.

He said the ninth plan will lay emphasis on the federal aspects of the economy in the light of the Sarkaria commission recommendations. What we need is vertical decentralisations coupled with horizontal co-ordination by the Centre, Dandavate said.

The Commission is also taking a close look at the extremely low taxation base in the country. A mere 0.8 per cent of the population in India pay income tax against a level of 85 per cent in several developed countries. The tax structure needs to be broadened and deepened, he said.