Finance minister Yashwant Sinha said today that the government was in favour of a low interest rate regime and that increased savings and higher capital-output ratio can push India's growth.
Claiming that the prevailing rates were the "lowest ever", Sinha said that it was for Reserve Bank to take a decision on interest rates. A multi-pronged strategy was required to stimulate and pump-prime the economy, he added.
"If you look into the interest rates today, perhaps, they are the lowest-ever. I have repeatedly said that it is not the ministry of finance but within the domain of the RBI. RBI will take all factors into account and decide," Sinha said on the sidelines of the seventh World Savings Bank Institute (WSBI) Asia-Pacific regional group meeting here.
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"There is no single factor which will rev up the economy. It will have to be a host of factors. We will have to depend on both (fiscal and monetary measures). We will have to have a multi-pronged strategy, can't be putting faith on one particular point and saying this is going to happen," he said.
The minister also said that the government had already put in place a high-level committee which was examining the possibility of putting in place an automatic system of adjusting the interest rate to the rate of inflation. "The interest rate will be automatically adjusted.... The government does not have to receive the flak every time the interest rate is reduced," he said.
Sinha further pointed out that it was not merely a question of the RBI bringing down the interest rate, as a cut by the apex bank "would not automatically trigger a rate cut across the board".
"The banks will have to look at the various efficiency factors and where the efficiency gains will allow them to reduce intermediation costs," Sinha said.
Asked about the increase in non-performing assets (NPAs), Sinha said that the percentage of NPAs both in net and gross was not growing. "We have to look at the percentage of both gross and net NPAs. Even if we consider the actual NPAs, the increase has been very marginal from Rs 53,000 crore in 1999 to Rs 54,000 crore last year," he added.
Earlier, speaking at the seminar, Sinha expressed concern over the decline in corporate and public sector savings, and said tax incentives to the small savings will continue.
Despite reduction in the rates of interest, there had been a sharp increase in the small savings rate, he said, adding that the post office savings accounts must be made more like banking accounts not merely in terms of individual service but collective service.
Sihna also said that the recently approved draft approach paper to the Tenth Plan was aimed at increasing the savings rate through increase in domestic savings and attracting more foreign investment. "The savings rate in India as a percentage of the GDP is lower as compared to the other countries. Unless, we have higher savings rate we can't have higher investment rate," he added.
Sinha admitted that while it was the responsibility of the national governments to insulate the public from the economic developments, no country could remain completely unaffected.
"In the globalised world you have to be a careful driver, but not everyone in the traffic is careful and so you run the risk of getting into an accident," he said, adding that the national government had the responsibility of getting out of any such situation as fast as possible.