Fair solution to rate transmission in the works: FM Nirmala Sitharaman

The finance minister told the industry it needed to introspect on how businesses are run and on Aatmanirbhar Bharat, for India to realise the full potential.

Finance Minister Nirmala Sitharaman said on Thursday the ministry has been in talks with the Reserve Bank of India as well as banks on why transmission of interest rate reduction was not happening at the pace at which it should.

”The benefit of reducing interest rate should not be denied to the customer. The RBI is engaged with us. Hopefully, we will come up with some fair solution quickly," she said, while addressing a webinar on MSMEs organised by Chennai International Centre. She said she had been made aware of "reasons", but they were “not convincing”.

Responding to complaints that private banks were not providing support under the emergency credit facility, she said she would have “agreed to the comment 10 days back, but now the private banks are getting on board”. She said that while the public sector banks have cumulatively disbursed around Rs 22,200 crore, private sector banks have disbursed around Rs 10,700 crore. “But then, private sector banks have to buck up a bit more,” she said.

She said the government would consider extending the Rs 3-trillion emergency line of credit to include individual proprietors. Also, Sitharaman said, the industry’s suggestion on providing collateral-free credit based on outstanding goods and services tax bills as security would be discussed internally in the ministry before a call is taken.

The finance minister told the industry it needed to introspect on how businesses are run and on Aatmanirbhar Bharat, for India to realise the full potential. Even while understanding that we have the capabilities, for some reason there is no interest to pursue it, she said. Taking manufacturing of active pharmaceutical ingredients in India as an example, she said: “India is a big captive market and there is a need to produce more within the country.”

India's Covid-19 pandemic fiscal cost lowest among major nations: Report

Business Standard's own calculations suggest that the Centre's fiscal impact amounts to around Rs 2.28 trillion, or around 1.2 per cent of GDP.

The actual fiscal cost of the Centre’s Rs 21-trillion ‘Atmanirbhar Bharat’ Covid-19 package was lowest among 20 major nations, said a recent research report by Motilal Oswal.

“The true fiscal stimulus in FY21 (fiscal year 2020-21), as per our estimates, amounted to only around Rs 2.5 trillion or 1.3 per cent of gross domestic product (GDP). The bulk of the fiscal support constituted loan guarantees and non-budgetary measures,” the report said.

Business Standard’s own calculations suggest that the Centre’s fiscal impact amounts to around Rs 2.28 trillion, or around 1.2 per cent of GDP. This includes tax revenue foregone, outlay towards free food distribution and cash handouts, increase in NREGA, interest subvention, increase in viability gap funding for social infrastructure, and initial support from the centre’s coffers to kickstart some of the liquidity and credit measures announced by Finance Minister Nirmala Sitharaman.

Additionally, not all of this amount will necessarily be borne in the fiscal year 2020-21. A portion of the total fiscal burden, especially on the rural sector and agriculture-related announcements, will come out of the centre’s budget over the next two-five years.

Motilal Oswal, it its report last week, said that this feature was not unique to India.

“Although the support packages in some developing economies, such as Thailand, Brazil, South Africa, and Malaysia cost 12–17 per cent of GDP, the actual fiscal stimulus is under 5 per cent of GDP for all. This is true for some developed economies as well.”