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May 3, 2001
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Money > Reuters > Report May 3, 2001 |
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Sinha justifies lower small savings ratesFinance Minister Yashwant Sinha defended on Thursday a decision to cut rates on government-run small savings schemes, saying the government could not borrow large sums at high interest rates. "There can't be a situation, certainly not a tolerable, sustainable situation where on one hand the government is compelled to borrow large sums of money and on the other hand it's compelled to borrow at high rates of interest," he said. "How can the two go together? It's just not possible," Sinha told a business seminar. Sinha has come under fire from opposition parties and some ruling Bharatiya Janata Party coalition members for cutting rates on the savings schemes by 100 to 150 basis points. Opponents of the move in the 2000-01 Budget said it has hit pensioners and other small savers but Sinha said keeping rates elevated to give higher rates of return was unjustified. Sinha's cut was followed by the Reserve Bank of India's move to ease its key lending rate by 50 points to 7.0 per cent. India has set a gross borrowing target of Rs 1.19 trillion in the 2001-02 Budget and the government has already completed 25 per cent of the programme. Asked by reporters whether there was more scope for lower rates, Sinha said that question was up to the central bank. "That's up to the RBI to decide. That's what they have indicated in the credit policy," Sinha said. The bank said in a recent policy statement it preferred softer rates. Industry has been demanding lower rates, saying the current cost of borrowing makes them uncompetitive. Leading state-run banks have a prime lending rate of 11.5 per cent. Sinha also said the US economic slowdown would have a 'minimal impact' on Indian growth, forecast at 6.0 per cent for 2000/01. He said he believed India could sustain current levels of growth. Sinha also urged the industry to introduce better corporate governance. "Corporate governance is all about a better deal for stakeholders and more importantly shareholders," he told the Federation of Indian Chambers of Commerce and Industry. "And this is one area, among many others, that we have been found wanting in years of liberalisation," Sinha said. Domestic stock markets plunged in March amid allegations of price-rigging and payments problems.
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