Higher interest rates will make Indian economy sluggish: Arun Jaitley

Finance Minister Arun Jaitley explaining the rationale behind the recent slashing of interest rate on small saving instruments like Public Provident Fund (PPF), has said that interest rates in India are “extraordinarily” high and the country’s economy will become sluggish if lending rates continue to rule high, adding that high interest rates prevent growth.

Jaitley further said that the government has to create a mechanism where interest rate becomes more reasonable and those are transmitted by the banks. He said that India must have multiple products, giving a range of interest rates and added that “even at 8.1 per cent rate is a very good rate of returns, much better than you get anywhere in the world because it is tax free. 8.1 per cent tax free is 12.2 per cent. It’s not a small rate of interest.

The FM said that the move to tax 60 per cent of withdrawals from Employees Provident Fund was aimed at discouraging people from making lump sum withdrawals and spending all the money and it was instead aimed at encouraging them to invest in tax-free pension plans to make India a pensioned society. The proposal was however withdrawal after widespread criticism.

Recently, the government had announced cut in interest rate on PPF to 8.1 per cent, on Kisan Vikas Patra (KVP) to 7.8 per cent from 8.7 per cent, on girl-child saving, Sukanya Samriddhi Account to 8.6 per cent from 9.2 per cent and senior citizen savings scheme to 8.6 per cent from 9.3 per cent with effect from April 1.