Minister of state for finance Jayant Sinha on Thursday said competition will drive down the lending interest rates, bringing relief for the common man.
The Reserve Bank of India had cut the repo rate, against which banks benchmark their lending and deposit rates, by 0.25 percentage points, to 7.5% on Wednesday.
In an interview to HT, Sinha said: "The fact of the matter is that we are in a competitive market economy. The RBI has now taken decisive action between January and now, and cut interest rates by 0.50 percentage points. As a result of that, our hope is that this will be passed on to customers by the banks. Because it is a competitive market place, the moment one or two banks do that, the other banks will certainly follow suit."
He however, ruled out the idea of the government nudging PSU banks to cut interest rates early. He said: "We are in a market economy... PSUs are independent and take decisions on their own as per market conditions...."
On the other hand, he said, combating the parallel economy by curbing domestic black money continues to be a serious concern.
He pointed to the new Benami Transactions (Prohibition) Bill and the measures announced including: amendment of Income-Tax laws to prohibit acceptance or payment in cash of any transactions relating to immovable property worth more than Rs 20,000. Then, PAN has been made mandatory for any purchase or sale exceeding the value of Rs 1 lakh. These will help curb the menace of domestic black money, he said.
"There is FII and FDI money… In the last calendar year we got $40 billion (Rs 2,48,000 cr) — $25 billion in the debt market, and $15 billion in the equity market. That's quite a large number.
In addition to that, we will continue to see strong inflows as the market continues to do well. Then when you look at FDI, for example, in e-commerce and private equity, there is a lot of money coming in.
Companies have announced a lot of investments plan. So, FDI is also coming in strongly and if you see the numbers they have gone up substantially… When we talk of factories coming in, setting up takes a lot of time but everything we have been seeing suggests that even this going to move forward at a faster pace," Sinha said.