Govt wants to stay with soft interest rate: FM

MUMBAI: Finance minister P Chidambaram said on Tuesday that the government wants to continue with a benign interest rate regime, but there were pressures on account of inflation, which has been fuelled by oil prices and high liquidity.

“It is the intention of the government to ensure that inflation is kept under control and interest rates are benign,� Mr Chidambaram said. He added that while the government has managed well so far, there are inflationary pressures due to rising oil prices and money supply, and interest rates were under pressure because of government borrowing and higher credit demand.

Speaking at the Bombay Chamber of Commerce and Industry’s 169th annual general meeting, Mr Chidambaram said that it was in the interest of manufacturers to keep prices low “There is a temptation among manufacturers to increase prices at the slightest pretext. Prices are increased because of higher demand in China. While it is perfectly normal economic behaviour, we have a responsibility to keep prices low,� the FM said.

This can be done by increasing efficiency and upscaling, he added. Mr Chidambaram warned that if manufacturers gave in to such short-term temptations it will come back to them in the form of higher interest rates. The FM said the government will do its bit to keep interest rates low.

Last year, the government borrowed less than its targeted borrowing programme,� he said. This year, too, the government will try to borrow less than what was projected, the FM said.

Mr Chidambaram said the government is planning a series of measures to increase the tax to GDP ratio. “It is our intention to keep the tax rate moderate, the administration friendly and tax enforcement strict,� he said. A part of the taxpayer-friendly initiative was to create tax centre units for large institutional taxpayers and help desks for small individual taxpayers.

The FM urged industry associations to come forward to work with tax authorities to set up such help desks. “These units will not be located in government buildings or tax collection centres, but close to where the taxpayers stay,� he said.