Chidambaram redux: Jaitley calls on RBI to cut lending rates

Finance minister Arun Jaitley, in a clear echo of his predecessor P Chidambaram of the Congress, on Friday called on the Reserve Bank of India to cut interest rates, saying lower rates would trigger demand for homes.

"Currently, interest rates are a disincentive. Now that inflation seems to be stabilising somewhat, the time seems to have come to moderate the interest rates," he said in a newspaper interview.

Raghuram Rajan, the widely respected governor of the RBI, has kept rates unchanged for several months, maintaining that despite the recent easing of inflation, it remains a challenge.

Jaitley indentified two key concerns of the government regarding the economy – low credit offtake and tepid performance of the manufacturing sector. He said banks have been inhibited from lending by non-performing assets (doubtful loans) on their books, and this had created "defensive banking".

He disclosed that Prime Minister Narendra Modi would shortly call a meeting of bank chiefs and urge them to be more liberal with credit, while assuring them of full support. This would be the first time that Modi will meet bank chairmen in an attempt to acceleratw credit flow.

The meeting would come in the backdrop of bank credit growth slowing to a 13-year low.

"The big worry is the manufacturing sector,'' Jaitley said. ''That is why the Prime Minister is giving an impetus to the manufacturing sector. We need investments and we need to create an environment of low cost quality manufacturing."

On the black money issue, the finance minister said the government will disclose the names of people who have stashed unaccounted money in overseas accounts once it files for prosecution. He iterated that India will honour its commitments under bilateral tax treaties.

"Our objective on this is not political our objective is to find out the names make them public according to the treaty requirements," Jaitley said.