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Nirmala Sitharaman pitches for 200 base points cut rates by RBI

She did not specify if it would be at one go or over a period of time.

By: PTI | New Delhi | Updated: August 29, 2016 6:24 pm
Union Minister of State, Commerce (Independent Charge) Minister of State, Finance Nirmala Sitharaman at the Indian Express Idea exchange in New Delhi on August 21st 2014. Express photo by Ravi Kanojia. The Commerce and Industry Minister said she will take up the matter with the Finance Minister about directing banks to pass on benefits of the rate cuts to the industry. Express photo by Ravi Kanojia.

Commerce and Industry Minister Nirmala Sitharaman today pitched for as much as 200 basis points, that is 2 per cent, interest rate cut by RBI to help the cash-starved MSME sector. She did not specify if it would be at one go or over a period of time.

“I still hold that the cost of credit in India is high. Undoubtedly, particularly MSMEs which create a lot of jobs contribute to exports… are all hard pressed for money and for them, approaching a bank is no solution because of the prevailing rate of interest. I have no hesitation to say, yes 200 bps, I would strongly recommend,” she told reporters here.

RBI, which has maintained key interest rate at 6.5 per cent since April this year citing inflationary concerns, is scheduled to hold its next policy review on October 4. The next policy will be presented by Urjit Patel, who will take charge as Governor on September 4. Industry chambers like CII have been pressing for interest rate cut to boost manufacturing and economy as a whole.

The minister also said she will take up the matter with the Finance Minister about directing banks to pass on benefits of the rate cuts to the industry. “I would want the entire banking system of this country to please be a bit more caring about the industry… it is time now for the Indian economy to have a breath of fresh air. The competitiveness of smaller companies is affected purely because of rate of credit,” she said.

WATCH VIDEO: Idea Exchange With Nirmala Sitharaman 

 

Every sector approaching the commerce ministry is all for “access to affordable credit”. She said the interest subvention scheme announced for exporters has been helpful in dealing with the impact of global demand slowdown. On exports, Sitharaman said, “I still hold on to the view that it is going to be tough climb, but I think it will be slow but steady.”

“Before the actual arresting happens and before the actual rise happens, we will have to wait and watch. It would probably be very slow, but that drastic fall has definitely been arrested,” she said. After rising for the first time in 18 months in June, exports shrank again in July, contracting 6.84 per cent, due to decline in shipments of engineering goods and petroleum products.

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  1. I
    Ips
    Aug 24, 2016 at 1:37 pm
    Why are you pressuring Urjit Patel?200-/- cut ,means deposit rate will be less then 4 for one year..RBI Governor I'll not go for such cut.
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    1. M
      MIGHTY BOMBER
      Aug 25, 2016 at 2:54 pm
      Let us consider a situation. A MSME has 100 employees and pays Rs.150000 per month in ry/wages. The company has an option of buying an automated machine and replace 50 employees by that machine, thus reducing ry/wages to Rs.100000 per month. At present, the company cannot contemplate to borrow from banks because of high interest rates, approximating Rs.60000 per month in installment on loan. If there is a rate cut and installment reduces to Rs.45000 per month, then MSME owner will be more than happy to borrow from bank and lay off 50 employees. Therefore, HIGH INTEREST RATE IN A WAY ENSURES THAT JOB OF THESE FIFTY EMPLOYEES IS INTACT. Also, rate cut from Reserve Bank has adverse impact on depositors who invest in bank fixed deposits. GOVERNMENT CAN HELP MSME SECTOR BY ASKING BANKS TO HAVE TWO OR THREE DIFFERENT RATE OF INTEREST DEPENDING UPON CAPACITY OF BORROWER. If a company with a turnover of thousand crore borrows one-crore from bank then, his rate of interest should be higher than a MSME who borrows one-crore with turnover of five crore. It makes no sense to have same rate of interest for all borrowers. New governor should take any decision on rate cut after carefully understanding its impact on ordinary citizens. In my view no rate cut is appropriate for next two years.
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