If Reserve Bank of India (RBI) reduces policy rates to sustain growth, there may not be any harm in it, said the Managing Director and CFO of State Bank of India, Mr. Diwakar Gupta.
He explained that as increasing interest rates 13 successive times could not control inflation; decreasing policy rates may not be harmful either. He said that inflationary conditions persist due to poor response from the structural side. He observed that government expenditure was not creating value and that fiscal policy needs to be re-oriented to manage inflation. He added that if government expenditure was used for building infrastructure, then even higher levels of deficit may not become a problem in the short run.
He also talked about new banking licenses and said that earlier banking licenses were issued with the view that it will accelerate penetration of banks in all regions across the country. However, the results were not satisfactory. According to him, every new bank should be given financial inclusion targets and the government, and Reserve Bank of India, should make sure that the new banks are fulfilling the financial inclusion targets.