Government will cut interest rate on small savings "cautiously" so as to protect vulnerable sections like retired employees, Finance Minister Arun Jaitley said today while expressing confidence that 7th Pay Commission report will not upset the fiscal deficit targets.
He said the government is using more
than three-fold increase in cess on petrol and diesel to fund infrastructure
projects like highways, but it will be a challenge to fund higher social sector
spending due to increased outgo on salary and pension.
Speaking at the Hindustan Times
Leadership Summit, he cited the example of the girl child scheme launched last
year to saying that "if after one year you immediately slash it (interest
rate) down radically, (it) may not be very politically prudent and therefore
you have to move in that direction but you have to move a little
cautiously".
As a lot of people depend on small
savings schemes, the Finance Minister said, "we as an elected government
have to look at it in addition to the economic principles with a sense of
political pragmatism".
Bankers have passed on as little as
20 per cent of the biggest rate cut effected by RBI since 2009 as they fear
becoming uncompetitive to small savings like PPF and Post Office
deposits.
Most small saving instruments pay an
interest rate of 8.75 per cent, compared to 7.5 per cent on deposits at
SBI.
Bank deposit rate has to be lowered
if the lending rate is brought down to allow transmission of 1.25 per cent
interest rate cut by RBI.
Jaitley said the impact of the 7th
Pay Commission recommendations for higher salary and pension for central
government employees, which will result in an additional annual burden of Rs
1.02 lakh crore on exchequer, would last for two to three years.
The recommendations are to be
implemented from January 1.
"I am not particularly worried
about the fiscal deficit target," he said.
The government, he said, was
confident of keeping spending within the targeted fiscal deficit of 3.9 per
cent for the current fiscal year ending March 31, 2016. Besides meeting the
target, the quality of fiscal deficit too will be improved, he added.
Source:-The Economic Times
