Chidambaram pitches for interest rate cut

No rollback in excise rate hike on SUVs

Realising that high interest rate is hurting many industries, especially the auto sector, Finance Minister P Chidambaram on Monday made a case for a cut in interest rates by the Reserve Bank of India, especially after the government took measures for fiscal consolidation in the Budget.

 “It is for the RBI governor to take a call. I hope the interest rates will come down,” he said after the industry expressed concerns about the rise in excise duty on SUVs at a time when the auto sector was facing recession heat and their sales have not been encouraging.

 The finance minister will address the Reserve Bank board in a customary post-Budget meeting here on Friday. He is likely to underline the need for reducing interest rates to spur economic growth.

 The RBI is scheduled to announce its mid-quarter policy review on March 19. In its last review on January 29, the central bank had lowered rates by 25 basis points.

 Chidambaram, however, ruled out any rollback on the 3 per cent hike in excise duty on SUVs proposed in the Budget, saying the meagre hike will not dampen the demand for SUVs.

 The government raised duty on SUVs to 30 per cent in the Budget this year from the earlier 27 per cent.

 “Once the interest rates come down and inflationary expectations are tamed, it will give rise to demand for vehicles,” he said during his post-Budget meeting with industry captains. The industry has been demanding rationalisation of indirect taxes.

“We will re-look at all suggestions on indirect taxes and announcements will be made in Parliament. We will take decisions and announce them when I reply to the debate on Budget and when I reply to the Finance Bill in Parliament,” he said. “The Budget is not a one-stop exercise.”

Chidambaram, however, emphasised that the main objective of his Budget was to send a signal to foreign investors that India was on a path of fiscal consolidation and that they can invest in the country.

 “We were at a point where if we did not declare our commitment to fiscal consolidation and did not take credible measures towards fiscal consolidation, there would be very severe consequences. We have kept our promise. We have contained our fiscal deficit at 5.2 per cent,” he said.

He clearly sent out a message that when the final numbers come, fiscal deficit might be slightly better than 5.2 per cent.

His efforts in the Budget to cut fiscal deficit received a prompt response from rating agency Moody’s, which said India offers  a “realistic” plan to meet fiscal deficit target and  it should be a credit positive for its sovereign ratings.

Moody's is the only one of the three major credit agencies, to have a “stable” outlook on India’s ratings after Standard & Poor's and Fitch cut the outlook to “negative” last year.