Interest rate reduction pushes up growth


Interview/ Yashwant Sinha, former finance minister

The government has reduced the interest rates for small savings schemes and the EPF. The middle class is not happy about it. How do you see this?

Every move has two sides. Some benefit and some suffer. When you reduce interest rate on savings schemes, people dependent on those savings for their livelihood would feel the pinch. Those who borrow from banks will be happy because their rate will get reduced to that extent. For senior citizens, it reduces their income and the logic of lower inflation will not cut ice with them because they do not experience it in their daily lives. In the context of larger economy, it is good because interest rate reduction pushes up growth and brings down cost of capital.

Do you see investments moving out of small savings schemes?

There is a popular impression that reduced rate is disincentive for savings. However, it is not so. During the NDA I regime, when I was finance minister, we reduced the rates but we saw savings increase substantially.

Why has equity cult not caught up in India? Do we need more incentives?

The markets are subject to wild fluctuations. That does not help build confidence. And, that is why the number of equity investors has not grown. We need more education, not incentives.

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Topics : #economy

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