The Finance Ministry move to cut interest rates on certain small savings schemes will not hit collections in such schemes, a top policymaker has said.
“As inflation lowers, there is a need to adjust our nominal interest rates. I do not see any such adjustment affecting the collections in small savings,” C. Rangarajan, Chairman to the Prime Minister’s Economic Advisory Council (PMEAC), told reporters on the sidelines of the 31st Skoch Summit here.
Rangarajan also said there is scope for further repo rate (rate at which RBI lends to banks) cut by the Reserve Bank of India if core inflation were to remain below four per cent.
India’s core inflation – measured by non-food manufactured products – fell to 3.8 per cent in February from 4.1 per cent in January.
Rangarajan sees liquidity improving in March with Government expenditure also picking up during that month.
“I believe banks will be looking at an appropriate opportunity to act on their lending rates…as Government expenditure picks up in March, the liquidity position of banks may also improve,” he said.
CAD worries
On current account deficit, Rangarajan said he expects CAD as a percentage of GDP to be higher this fiscal at about five per cent.
At the same time, he noted that the capital flows will be adequate to cover CAD for the current fiscal.
For the next fiscal, Rangarajan sees CAD to be lower than the current fiscal and capital flows covering that will not be a problem.
Import of gold will come down as inflation comes down, he said.
Rangarajan also said that he expects food inflation to ease in the next two months. For 2013-14, he expects the Indian economy to grow at 6.5 per cent.
Bats for direct cash transfer
The direct benefit transfer (DBT) scheme should be given a fair chance as it is a pro-poor experiment, said Montek Singh Ahluwalia, Planning Commission Deputy Chairman, here on Monday.
Anyone concerned about poor should be in favour of DBT, Ahluwalia told the 31{+s}{+t} Skoch Summit here. In our country, where we are always looking to solve problems, we ought to look at new options. DBT is a new experiment. It will be possible to implement this scheme because of the unique identity number, Ahluwalia said.
The scheme will provide opportunities to transform the power relationships between large number of consumers and those possessing access to resources “Nothing is 100 per cent defect free. You will see stories of things going wrong. But we should pursue with this experiment,” he said.
Nandan Nilekani, Chairman, Unique Identification Authority of India said that Aadhaar-based DBT had several benefits, including de-duplication of beneficiaries and opening of bank accounts.