Thursday, December 11, 2014

Arun Jaitley again pokes RBI to cut interest rates
Photo: Live Mint
NEW DELHI, Dec 11, 2014: Finance minister Arun Jaitley on Wednesday made a strong nudge for interest rates to ease against the backdrop of moderating inflation and announced a compensation of Rs 11,000 crore to win over states for a nationwide rollout of the goods and services tax (GST). 

"If you bring down the rates, people will start borrowing from banks to pay for their flats and houses. The EMIs will go down. We are waiting to take the situation to that and I am sure that the authorities who are competent to deal with it are fully seized of this view notwithstanding the balancing exercise between inflation management and growth which they have to do," Jaitley said in the Lok Sabha. 

The Reserve Bank of India in its monetary policy review earlier this month had left interest rates unchanged, but indicated that it may ease early next year depending on the inflation situation.

Jaitley stressed the government is committed to sustaining a favourable climate for foreign investment through a "civilized" and "predictable" tax regime.

The minister was replying to a debate on supplementary demands for grants for an additional expenditure of over Rs 12,500 crore, out of which the cash outgo would be Rs 500 crore. The opposition had raised issues of failed promises, federalism and cut in social spending. The demand for grants was approved by the Lok Sabha. 

Jaitley also announced the release of Rs 11,000 crore to states in the current fiscal as part payment towards CST compensation to facilitate roll-out of the goods and services tax (GST), a day ahead of his meeting with state finance minister to iron-out contentious issues holding up rollout of the ambitious tax reform. The government hopes to resolve the issues for the eventual introduction of GST.

"I had committed to partial payment of the outstanding outstanding CST compensation will be released this year. I stand by this commitment given by me. Despite difficult and challenging situation, I proposed to release Rs 11,000 crore which is one-third this year as part payment of CST compensation to the states," he said. The FM said a major impediment in the implementation of GST was the trust deficit between states and the Centre over non-payment of CST compensation to states from 2010. 

"This will take care of the amount from 2010-11 onwards; the balance amount I shall start paying from the next financial year onwards when hopefully the situation would be better," the FM said.

Referring to the select committee report on further opening of insurance sector, Jaitley said, "Large investments are waiting to come in. We have to open the doors." The committee has suggested a composite foreign investment cap of 49% in the insurance sector, as against 26% FDI cap currently. 

The government would endeavour to usher in a "civilized tax policy" to attract overseas investments, he said, adding FDI regime has already been relaxed in the defence sector and has generated lot of interest from top global manufacturers. 

"The retrospective tax only brought bad name to the country without realizing any revenue. Ultimately it was struck down by the court. We want to have a predictable and civilized policy. We don't want to flex muscles unnecessarily," Jaitley said. 

He accused UPA of creating fiscal mess which resulted in NDA inheriting an economy with "a negative sentiment" where fiscal deficit had reached unmanageable proportions and forced borrowing leading to cut in planned expenditure. 

He said, thanks to falling crude prices, NDA had been able to control inflation and brought down fuel prices seven times. "If the trend continues fuel prices would be decreased further. Opposition had accused the government of not passing on the benefit of 40% drop in global crude prices since June to consumers. 

Arguing that a "very large investment" was waiting to come to India once limit for foreign investment is increased, Jaitley said, "How long are we going to remain a country which does not have adequate health insurances. Forget other forms of insurances LIC can take care of life insurances but you need to expand these sector ... public health system is not adequate. People are forced to sell their property for treatment. We should not oppose it just for the sake of ideology or dogma." 

Earlier, Congress MPs Veerappa Moily and Deepender Hooda along with TMC MP Saugata Roy accused the government of failing to deliver on its promises by not bringing in any radical reforms, failing to bring in black money, cutting social sector expenditure and diluting MGNREGA. 

Jaitley said it was myth that MGNREGA was being diluted and argued for remodelling of planning commission by pointing out that even Congress CMs were talking about cooperative federalism and decentralisation of economic control.

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