 "Revenue Secretary Shaktikanta Das Picture by PTI File photo")
Asserting that India is moving towards a low interest rate regime, Economic Affairs Secretary Shaktikanta Das today said banks are expected to cut interest rates over the next few days in light of the recent monetary policy easing by RBI.
"Banks are autonomous and the government has given very strong signal by maintaining the fiscal deficit at 3.5% and resetting small savings rates. RBI has reduced the policy rate by 25 basis points. One would expect banks to take a policy call and I am sure they would do it in days and weeks to come," he said on the sidelines of an event here.
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The Reserve Bank, in its first bi-monthly policy review of the current fiscal on April 5, cut interest rate by 0.25% and introduced a host of measures to smoothen liquidity supply to help banks lend more money to productive sectors and indicated an accommodative stance, going ahead.
Banks are now also expected to do effective transmission of rates, he said, adding that part of it has already been done by adopting the Marginal Cost of Funds-based Lending Rate (MCLR) and reducing the rate of interest marginally.
"We would expect the banks to do a more effective transmission of rates. I do expect banks to take steps in that direction," he said.
Das further said India is moving towards a low interest rate regime as inflation is under control.
"We are looking at a regime of low interest rates, thanks to inflation being under control and various measures which the government has taken. The finance minister has given a very strong message that India should move to a low interest regime by sticking to the fiscal deficit of 3.5%," he added.
Recognising the importance of rural demand in the growth sweepstakes, Das said the government has given the much-needed importance to the agriculture sector in the Budget.
He admitted that the problem of failed monsoons in the last two years has affected the purchasing power.
"The rural and agricultural sectors consequently faced some kind of stress and a great amount of distress. The initiatives that have been announced in the Budget we expect would create rural demand and boost agricultural activity," he said.
Expressing the government's commitment to achieve 8-8.5% GDP growth in coming years, the secretary said it should be job oriented.
The main focus of the government is "to make domestic demand more robust, not merely by cash transfers but by investing in infrastructure".
Stressing on the need to make India a low-cost economy, Das said, "When I talk about low cost, I am not referring to low wages, which is not a very happy situation... I am referring to the government's initiative in lowering transaction costs by ease of doing business."
He added: "A series of measures have been taken in the last two years. Room for high transaction costs is eliminated, room for discretion which often leads to different kinds of arbitrage opportunities also gets completely eliminated."
His assessment is a low cost economy will reduce the transaction cost and tax rate is also expected to come down.
The government is looking at a scenario where tax rates will be moderate and cost of doing business will also significantly fall.
