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December 26, 2001,
1220 IST
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Sinha says soft rate policy to continue

Finance Minister Yashwant Sinha said on Wednesday said the government's soft interest rate policy will continue as it was necessary.

"In view of the low rate of inflation within the country and what is happening all round the world, soft interest rate is not only desirable but is necessary," Sinha told Reuters in an interview.

He said the government has been trying, in tandem with the central bank, to take the country towards a "softer interest rate regime" but the biggest impediment had been the fiscal deficit.

India's stubbornly high fiscal deficit widened to 5.2 per cent of gross domestic product in 2000-01 (April-March) due to lower than-expected tax revenues.

Analysts say the government is likely to miss its fiscal deficit target of 4.7 per cent of GDP this financial year also as tax revenues have been hit because of the economic slowdown.

"I will only make a general statement that the softer interest rate policy will continue," Sinha said.

"It is more necessary to continue that policy in the present situation than was the case before," he said when asked if he would cut rates on small savings schemes.

Sinha had come under fire from opposition parties and sections of his own Bharatiya Janata Party for cutting rates on small savings schemes by 100-150 basis points in February.

The cuts sparked political furore as pensioners and the middle classes rely on the small savings schemes for income.

The finance minister, who will unveil his 2002-03 Budget in February, said he would try to make it "taxpayer friendly" and boost government spending in key infrastructure sectors.

Sinha unveiled a series of administrative reforms, simplified tax structure and announced radical changes in labour laws in his 2001-02 Budget presented in February.

But his Budget dreams turned sour as the government shied away from these tough reforms out of fear of losing mass support as it faced pressure following accusations of an arms scandal, a stock market rigging scandal and losses incurred by the country's largest mutual fund manager.

Sinha said he would simplify the tax structure, widen the tax net and eliminate evasion in the upcoming Budget and added there was a "good theoretical case" for the services sector, which accounts for almost half of GDP, to contribute more to tax revenues.

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