Welcoming the 50-basis-point cut in repo rate by the central bank, finance minister Arun Jaitley on Tuesday announced that the government would review the small savings scheme framework to nudge banks to transmit the monetary policy reduction and would also re-assess the growth forecast for the fiscal. “This decision of the Reserve Bank of India will significantly provide policy support to the real economy and help in the recovery process. We are looking forward now to the transmission of the cuts which will effectively help to boost investment and confidence. It will also help realise the economy’s medium term growth potential,” he said. Watch Video: Indicating that the returns on small saving products such as the public provident fund could come down in line with the overall reduction in interest rates, he further said the government will review the interest rate as well as all other aspects of these schemes. [related-post] Banks have, in the past, been reluctant to transmit the entire policy rate cut by RBI to borrowers with small saving schemes offering interest rates between 8.7 per cent and 9.3 per cent. Meanwhile, stressing the government will continue to remain vigilant over inflation as well as commitment to fiscal deficit targets, the finance minister also announced that the growth forecast of 8 per cent to 8.5 per cent this fiscal will also be reviewed. “It is not necessary for us to make our own parallel judgment at this stage. We will reassess the situation,” he said. Chief economic adviser Arvind Subramanian said it is likely to be done after the second quarter corporate results. The RBI lowered its economic growth forecast for the current fiscal to 7.4 per cent from 7.6 per cent. Jaitley also welcomed the RBI’s decision to ease portfolio investment norms, noting that it would enable Indian corporates to “raise external commercial borrowings (ECBs) through rupee denominated offshore bonds with no end use restrictions. This would enable them with an additional source of resources.” Economic affairs secretary Shaktikanta Das also said that there is appetite for rupee denominated bonds in the overseas market. “It would bring in greater foreign participation with predictability and would result in higher liquidity in the Indian government securities market,” he said, adding that move was announced after extensive consultations with the RBI. The higher limit of foreign portfolio investments in government securities will result in additional inflow of investments in G-secs by about Rs 1.2 lakh crore from the existing limit of Rs 1.53 lakh crore by March 2018. In the current fiscal, he added, an additional Rs 26,000 crore will flow into the government securities market. Similarly, the higher FPI (foreign portfolio investor) limit in state development loans would amount to about Rs 50,000 crore by March 2018 and close to Rs 7,000 crore this fiscal.
