New Delhi, India :
Justifying slashing of interest rate on small saving instruments like PPF, finance minister Arun Jaitley said interest rates in India are “extraordinarily” high and the country risks becoming the most sluggish economy if lending rates continue to rule high.
The existing tax-free interest rate of up to 8.7 per cent on small saving instruments translates into an effective interest of 12-13 per cent on deposits. Correspondingly, the lending rate, which is always a notch above deposits rate, would be 14-15 per cent, he told PTI in an interview here.
“On small savings, India’s interest rates are extraordinarily high. And high interest rate prevents growth,” he said.
Citing the example of 8.7 per cent tax free interest on Public Provident Fund (PPF) investments, he said this translates into an interest rate of 12.5 per cent or 13 per cent including tax benefit.
“Where in the world you get 12.5 per cent return of interest? So if deposit rates become 12.5 per cent, then what should lending rates be, 14 to 15 per cent? You will become the most sluggish economy in the world, if lending rates are 14 to 15 per cent,” he said.
Jaitley said no country can have “a system where lending rates are low but deposit rates are high. The two are interlinked”.
The government had on March 18 announced cut in interest rate on PPF to 8.1 per cent, on Kisan Vikas Patra (KVP) to 7.8 per cent from 8.7 per cent, on girl-child saving, Sukanya Samriddhi Account to 8.6 per cent from 9.2 per cent and senior citizen savings scheme to 8.6 per cent from 9.3 per cent with effect from April 1.
Asked whether the government had taken an unpopular decision, Finance Minister said, “It would be most unpopular decision if India’s lending rates were 14 to 15 per cent. To destroy India’s economy would be the most unpopular thing to do. Low interest rate in the long run will help everybody.”
Justifying slashing of interest rate on small saving instruments like PPF, finance minister Arun Jaitley said interest rates in India are “extraordinarily” high and the country risks becoming the most sluggish economy if lending rates continue to rule high.
The existing tax-free interest rate of up to 8.7 per cent on small saving instruments translates into an effective interest of 12-13 per cent on deposits. Correspondingly, the lending rate, which is always a notch above deposits rate, would be 14-15 per cent, he told PTI in an interview here.
“On small savings, India’s interest rates are extraordinarily high. And high interest rate prevents growth,” he said.
Citing the example of 8.7 per cent tax free interest on Public Provident Fund (PPF) investments, he said this translates into an interest rate of 12.5 per cent or 13 per cent including tax benefit.
“Where in the world you get 12.5 per cent return of interest? So if deposit rates become 12.5 per cent, then what should lending rates be, 14 to 15 per cent? You will become the most sluggish economy in the world, if lending rates are 14 to 15 per cent,” he said.
Jaitley said no country can have “a system where lending rates are low but deposit rates are high. The two are interlinked”.
The government had on March 18 announced cut in interest rate on PPF to 8.1 per cent, on Kisan Vikas Patra (KVP) to 7.8 per cent from 8.7 per cent, on girl-child saving, Sukanya Samriddhi Account to 8.6 per cent from 9.2 per cent and senior citizen savings scheme to 8.6 per cent from 9.3 per cent with effect from April 1.
Asked whether the government had taken an unpopular decision, Finance Minister said, “It would be most unpopular decision if India’s lending rates were 14 to 15 per cent. To destroy India’s economy would be the most unpopular thing to do. Low interest rate in the long run will help everybody.”
