RBI rate cut is a welcome step for near-term boost for economy: Jayant Sinha

NEW DELHI:The government has welcomed the Reserve Bank of India’s move to cut benchmark interest rate by 25 basis points or 0.25%, saying it was a vote of confidence for the Union Budget presented last week.

"We are in a situation where we see EMIs (equated monthly installments for loan repayments) coming down," said minister of state for finance, Jayant Sinha, adding it is a welcome step as everyone is looking for near-term boost in economy.

RBI took markets by surprise as it lowered the repo rate to 7.5% from 7.75%, three days after the budget. Earlier in the day, the markets responded positively to the announcement and the Sensex hit the 30,000 for first time by gaining over 400 points.

The benchmark index, however, closed 213 points lower at 29,381. Sinha said the macro-economic parameters, were "bitter economic truths," which the NDA had inherited from UPA regime.

"These came in the shape ofRs 16.8 lakh crore actual expenditure in FY15, interest paymentsRs 4.1 lakh crore, representing 37% of revenue collection," he said, adding that India’s tax-GDP ratio, fiscal deficit and debt levels were among the worst in the developing world. He said the government is pursuing a very pru-dent fiscal consolidation road map and the aim is to move growth onto a sustainable, non inflationary path of 7 to 8% in the long run for the next decade.



"What is going to happen to rate cycle moving forward is going to be driven by data and RBI has signalled this clearly," he said, while adding that further room for easing rates remains.

The minister said RBI has appreciated budget's ‘fine balance,’ that the fiscal consolidation road map remains in place but at the same time, the quality of government expenditure is good. Sinha said inflationary expectations have collapsed and a global deflation trend was prevalent. RBI had last cut the repo rate on January 15 by 0.25% to 7.75%.

Chief Economic Advisor Arvind Subramanian said the rate cut is consistent with the government's views in last week's Economic Survey and thereafter in the budget for the outlook on inflation and the overall economy.

"Now we have a 50 basis points rate cut (in two tranches within two months) and, I think, that is good for the economy and all rate cuts benefits... If the outlook is looking good, rating agencies should draw lessons from that on improving outlook," he added. Revenue Secretary Shakitkanta Das said raising service tax to 14% from 12.36% in the budget was a necessary measure in the eventual movement towards goods & services tax (GST).

"States will get powers to tax services under the GST, pushing up the rate, so the government has raised the rates, signalling transition towards a new regime," he said. Das said the year would see a road map for gradual reduction of corporate tax and elimination of subsidies.