Mr Jaitley’s idea may be in pursuit of the cuts he got effected in the case of rates of savings schemes of post offices and the public provident fund. Banks have always promptly reduced deposit rates, marginally though, whenever the central bank signals cuts in the key lending (repo) rate, but are reluctant in transmitting lending cuts to borrowers, keeping their margins to improve balance-sheets. And these are stressful times for public sector banks.

The fact remains these banks are yet to fully transmit in their lending to borrowers the 150 basis points cut that RBI Governor had made over the last year, bringing down the repo rate from 8 per cent in January 2015 to 6.5 per cent early this year. This is one of the factors weighing with the central bank in determining the monetary stance next time.

In the high inflationary years of the recent period, savers, mostly with modest or lower incomes, were undoubtedly getting higher rates on their deposits but still relatively less equivalent to the then elevated WPI and CPI levels. The term deposit rates had since been lowered gradually with the decline in inflation in the aftermath of fall in oil prices, benefitting India chiefly as a major oil importer. It was a gain for both Mr Jaitley’s fiscal consolidation map and balancing of current account deficits. RBI also found it easier to lower policy lending rates.

From a wrong premise that depositors were still benefitting from 'high' interest rates on savings, at a time of acute stress in the banking system and slowdown in credit growth, Mr Jaitley has raised the question of continuing with such rates thereby creating an interest rate regime 'costly for business to make investments', and sluggishness for economy.

This is one more attempt to coax corporates into investment, through the interest rate mechanism. Mr Jaitley thinks that even with lower returns, depositors will have nowhere else to go but continue with banks and says those wanting better returns should seek other instruments (funds, bonds and shares).

'High' lending rate has been an abiding cry of corporate business with the quiet backing of Finance Ministry. Governor Rajan had pointed out in one of his recent speeches that it was not the level of interest rates in public sector banks that explained credit slowdown. The stress, he said, must be due to loans already on PSB balance sheets and their unwillingness to lend more to sectors to which they have high exposure.

There has been a certain lowering in the base lending rate of banks after being persuaded by the central bank. But the banks have no incentive to reduce further the interest rate the borrower can pay, and lack of competition among them to lend to such borrowers has not resulted in forcing down loan rates.

Again, Mr Jaitley's concerns are understandable with corporate investments not reviving as expected thus far notwithstanding his business-friendly reform policies and steps taken to ease doing business. Even more disparaging perhaps is how rating and other agencies like Moody's are looking at the macro picture with downrisks, centred on high corporate leverage and lack of its pricing power and low nominal growth.

These agencies have lowered growth estimates for fiscal 2017 below the 7.5 per cent benchmark of IMF/World Bank, 7.6 per cent of RBI, and a range of 7.5 to 8 per cent of the Finance Ministry. Rather than being impressed by 'fast-forwarding' of reforms (radically revised norms for FDI in several sectors), external agencies are sceptical as to how Government would work itself out of its current woes including rise in food inflation, industrial stagnation and the banking imbroglio.

For a rate cut by RBI, Government, which is soon to name the next Governor to take over from Dr. Rajan on September 4, the statutory Monetary Policy Committee (MPC) could be set in motion before the third bi-monthly policy review scheduled for August 9, without giving up hope for another rate cut before Dr Rajan hands over.

The incoming data on CPI and output trends would be taken into account, as also other factors, both global and domestic, especially the impact of monsoon for agriculture and other significant trends to determine whether further easing of the already accommodative policy is required. These are factors consistently followed by Dr Rajan.

Recognising that public investment has to rise measurably at present and fiscal deficit to be contained at 3.5 per cent of GDP, Mr Jaitley's predicament is understandable - hence his efforts at not only raising tax revenues, enlarging the role of cesses and reducing outgo of subsidies but also bringing down the savings of common people seeking some shield for them in an extraordinary price situation at the retail levels over which the Finance Ministry has little control.

Nevertheless Nr Jaitley has raised a basic question over the concept of 'high' domestic savings as an essential component for economic growth in India, no matter large segments of low-income sections involved in depositing savings in safer public sector banks. He seems to have totally ignored the historic role that high rates of domestic savings and investments have played in India's growth trajectory ranging 8 to 9.5 per cent, until recently.

Higher domestic savings had helped higher gross fixed capital formation over the long term. Whether all this was managed effectively at all times may be questionable but India had prided itself in the past on how it was making utmost efforts in domestic mobilisation of resources for development. The emphasis was on keeping external assistance to the minimum

Also, it is worth noting that financial savings of the household sector accounting for two-thirds of domestic savings have been the key element in financing total investments while public sector savings has been a dismal story all through. For the Modi Government wedded to a market-driven economy and maximum reliance on external capital flows to finance infrastructure as well as key industries, the historic role of domestic savings and investment may even be given the go-bye. (IPA Service)