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‘Time for RBI to cut interest rates’

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‘Time for RBI to cut interest rates’

Last updated: March 24 2012
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  • ‘Time for RBI to cut interest rates’

    The government expects inflation to stay around 6.5%-7% next year despite the possibility of an increase in oil prices. In an interview, economic secretary R Gopalan told TOI that it may be a good time for the Reserve Bank of India (RBI) to start cutting rates and do its bit in helping boost investment. Excerpts:

    How have you addressed the concerns on investment, which has been slowing down, and is one of the biggest concerns in recent months?

    Several measures have been taken for infrastructure sector in the budget, such as steps on external commercial borrowings and tax-free bonds and measures for the stressed sectors, infrastructure financing is being made more easy. Some of it was done before the budget and there have been measures such as the Delhi-Mumbai Industrial Corridor that will spur investment. With the inflation starting to come down and steps for speedy approvals and implementation initiated, there is a strong signal to the investor community and the industry is also recognizing that. The measures will kick start investment.

    What about the impact of amendments to tax laws, with retrospective effect, to collect revenue from Vodafone and others?

    The finance secretary has talked about the reasons for the amendment. If you look at the Chinese experience, there is nothing to suggest that investment was hit after they amended the tax law. This kind of a thing does not deter FDI. Investors look at several things, such as the size of the market and the ease of doing business.

    Given that inflation is moderating,whatdoesthe overall situation look like and should RBI also do its bit to spur investment?

    Food inflation had a very significant impact on overall inflation for about 20 months. The supply side issues are being addressed by the government for twothree years, and several projects have started yielding results. Yes, the impact of fuel price can come up at an appropriate time but the overall inflation will still be around 6.5%-7% for most part of the year. It is necessary to look at some positives for growth to take place. One of the important inputs is interest rate. While it is for the RBI to decide, it is a good time for it to consider easing interest rates a bit so that industry can get cheap funds.

    Aviation is one of the stressed sectors where the government is considering allowing foreign carriers to invest up to 49% in Indian airlines. Does the sector need a comprehensive package that includes loan restructuring?

    FDI is under active consideration and there is a process that we follow in government before deciding. If a restructuring has to be done, the regulator has to be approached and that's a continuous process.

    You have budgeted for Rs 40,000 crore from spectrum auctions. Is that a reserve price and is it possible to get the money in 2012-13 given that the telecom department has said that the process will take 400 days?

    We are calculating 400 days from the day the judgment came on February 2. So the process can be completed by March 31, 2013. We can also go beyond Rs 40,000 crore but we have gone by telecom department estimates.

    -TOI
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