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RBI must cut interest rate to boost investment, achieve 7-8% growth: Arvind Subramanian

24 Dec 2014 Evaluate

Amid rising concerns over the prevailing high interest rates and sluggish economic growth, Chief Economic Adviser Arvind Subramanian has asserted that there is a need to boost investments to achieve the potential economic growth rate of 7-8 percent in the next few years. Pitching for a rate cut by the Reserve Bank,  Arvind Subramanian stressed that with the inflation witnessing a declining trend, there is room for Apex Bank to cut interest rate even before the next policy which is due on February 3. Referring to investment, Arvind Subramanian stated that the private sector is facing high debt problems and hence it has become imperative to boost public investment to improve the business climate.

In order to contain the inflation, the RBI has kept the interest rates high at 8 percent since January. However, the WPI inflation declined to five and half year low at 0%. On the other hand, Indian GDP growth slowed down to 5.3% y-o-y to 14.39 lakh crore in Q2FY15 as against 5.7% in the previous quarter mainly due to sluggish investment and low demand.

Further, Arvind Subramanian also expressed the concern over the widening fiscal deficit and said that it would be a challenge to restrict the fiscal deficit to 4.1 percent in current fiscal. He also hinted measures like Rs 60,000-80,000 crore expenditure cut to generate additional revenues if it appears difficult to meet fiscal deficit targets this fiscal.

On economic growth, Chief Economic Adviser said that economic indicators have improved enormously as inflation is coming down and current account deficit is under control. Subramanian exuded the confidence that the current fiscal will end with a growth rate of 5.5 percent up from 4.7 percent in the previous year.

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