Bank interest rates will have to be far more affordable : FM

Bank interest rates will have to be far more affordable at a time when industries want to ramp up and move, building capacities, said Finance Minister Nirmala Sitharaman.

“When you look at India’s growth requirements, and you can have so many different voices coming out and saying the cost of borrowing is really very stressful.

“And at times when we want industries to ramp up and move, building capacities, bank interest rates will have to be far more affordable. These are our requirements if we have to make “Viksit Bharat” not just an aspiration but a reality,” she said in reply to a question on “inflation and interest rates” SBI’s 11^th Banking & Economics Conclave.

Food inflation

Referring to the top three perishable goods (tomato, onion and potato/TOP), which are causing stress on to the inflation numbers, whilst for the core (inflation) the numbers are actually on the higher end of three per cent but lower end of four per cent, Sitharaman said: “I do not want to get into this debate of whether perishables should be part of inflation index measure and whether it is just a supply chain problem, demand-supply problem, which should influence the decision of the MPC (monetary policy committee) or not.”

The Finance Minister’s observation comes in the wake of Commerce Minister Piyush Goyal airing his personal view that RBI must cut interest rates and that it is a flawed theory to consider food inflation for making a choice on cutting rates.

RBI Governor Shaktikanta Das, last month emphasised that at this stage of the economic cycle, having come so far, the economy cannot risk another bout of inflation.

“The best approach now would be to remain flexible and wait for more evidence of inflation aligning durably with the target. Monetary policy can support sustainable growth only by maintaining price stability,” he said.

Addresses growth concerns

Mentioning the concerns arising from recent signs of moderation in certain economic indicators, the Minister said: “The concerns are there. I want to address them...Whilst I acknowledge the remarkable growth trajectory and promising prospects of the Indian economy, it also important to address the concerns. Let me assure you that the Government is fully aware of the challenges posed by both domestic and global factors. There is no cause for undue concern.”

Sitharaman underscored that India’s economy remains resilient, underpinned by strong macroeconomic fundamentals, moderating inflation, robust external position, and continued fiscal consolidation. These factors have reinforced confidence among both consumers and businesses.

“Recent high frequency indicators also reflect sustained growth momentum. Record e-way bill generation, buoyant trends in rural demand, and strong PMI data for manufacturing and services underscore the steady pace of economic activity,” she said.

Furthermore, FDI inflows have demonstrated healthy growth in FY25 (so far), reinforcing global confidence in India’s economic potential.

India’s foreign exchange reserves comfortably cover 11.8 months of imports and exceed 100 per cent of external debt, underlining the strong net buffer in the Indian economy.

“So, let me assure you all that the Government is closely monitoring the evolving situation. We remain committed to taking all necessary measures to ensure that India remains fully and firmly on course to becoming the third largest economy in the world,” Sitharaman said.

On the demand for credit in the economy, SBI Chairman CS Setty observed that his bank, which is a proxy to the Indian economy, has a robust sanctions and disbursement pipeline of ₹6 lakh crore in corporate and MSME credit.

Time for rating upgrade

When Setty asked whether India’s sovereign rating should be upgraded, the Minister said: “I will readily agree. Yes, we need to have our ratings improved... When the entire globe has been hit by Covid, subsequent wars, disruption of supply chains, etc...for a large economy like India to maintain its pace of growth gives enough reason and more for its ratings to be better considered.”