Nirmala Sitharaman.
Credit: PTI Photo
Making a pitch for rate cuts by the RBI, Finance Minister Nirmala Sitharaman on Monday said that the cost of borrowing is “very stressful” and an affordable lending rate is required to ramp up private investments in order to achieve India’s aspirations.
“When you look at India’s growth requirements and you can have so many different voices coming out and saying the cost of borrowing is really very stressful, and a time when we want industries to ramp up and move building capacities, our bank interest rates will have to be far more affordable,” Sitharaman said at a conclave organised by the State Bank of India (SBI) in Mumbai.
In order to rein in high inflation after the Covid-19 pandemic, the RBI hiked policy interest rates cumulatively by 250 basis points (2.5 percentage points) between May 2022 and February 2023. They have since remained unchanged.
Though core inflation (excluding food and fuel) has largely been under the RBI’s median target of 4% for the past two years, food prices remain volatile.
The surge in food prices pushed the headline retail inflation to a 14-month high of 6.21% in October, as per the latest data, denting hopes of a rate cut in the next Monetary Policy Committee meeting.
Commerce Minister Piyush Goyal recently made a pitch for rate cuts, saying targeting food inflation through interest rates is a “flawed theory”.
Sitharaman said one of the key reasons for volatility in inflation is supply-demand constraints of perishable commodities, notably tomatoes, onions and potatoes.
“India periodically and cyclically suffers from inadequate supply of perishable commodities.
We as a government are making a lot of efforts towards scientific and more rigorous storage facilities for perishable commodities,” she said.
As per the latest Commerce Ministry data, the price of tomato surged by 239.4% year-on-year in the wholesale market in October while onion and potato became costlier by 39.3% and 78.7%, respectively.
Stating that she does not want to get into the debate of whether volatility in food prices should be considered for deciding the policy interest rates, Sitharaman said these are complex issues “very much affecting the common man”.
On the potential slowdown in economic growth, Sitharaman said there is no reason for excessive worry and the government is closely monitoring both domestic and global challenges.
Meanwhile, global brokerage firm Morgan Stanley on Monday lowered its India GDP growth forecast for the current financial year to 6.7%, from its earlier projection of 7%, citing slower than expected performance in the July-September quarter.