New Delhi: Finance Minister Arun Jaitley has questioned the high interest rate regime for domestic savings, especially when the propensity to park funds in banks is high in India and the corporate sector constantly complains of high cost of funds.
"India has another peculiar characteristic that we are a society where percentage of domestic savings is very high," Jaitley told a function organised by the BSE (formerly the Bombay Stock Exchange) here, referring to the figure of around 38 percent of gross domestic product.
"Whether domestic savings are to be used only by such instruments which give you higher interest rate and therefore create a regime which is extremely costly and makes the economy sluggish?" he queried.
"Or higher returns are to be got from such instruments, funds, bonds, shares, a lot of them also have an element of secured investment in them which can give to people a very respectable return as well?" he posed.
"That's the basis on which pension funds the world over have been functioning and I think these are areas of advances as we grow over the next several years and decades -- more opportunities are going to come to us," he said, specifically referring to public-private partnership.
The gross domestic savings rate -- from households, private companies and public sector firms -- is the total value of the country's gross domestic output minus the consumption. Such saving is kept as cash, put into banks or invested back, which is called capital formation.
If the interest rate paid by banks on such savings is high, it automatically translates into a higher interest rate that can be charged on loans taken by the corporate sector, as also toward purchasing houses, automobiles or other consumer durables.
The Finance Minister, who was speaking at the event to mark 140 years of what is Asia's oldest bourse, said: "As we grow, we're going to need lot of investment. There is infrastructure deficit and industrialisation deficit."
He said the starting point for all that was investment, which alone could cover the deficit. That is the reason why, he alluded, it was necessary to have an affordable interest rate regime, both for households and for the private sector.
For that reason, the government has been reducing the interest rate on small savings since March.
