Chidambaram's prescription for reviving growth

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In a bid to revive investment across the board, Finance Minister P. Chidambaram on Saturday asked banks to cut interest rates and keep EMIs at affordable levels to encourage sale of consumer durables that will restart the engine of manufacturing.

After a review meeting with the chiefs of public sector banks against the backdrop of slowdown in the economy, he also announced rescheduling of farm loans in drought affected states and revision in procedures for easy sanction of education loans to students.

Maintaining that health of the banking sector is extremely good, Chidambaram directed the banks to double the number of ATMs from 63,000 in two years and also to make them cash accepting machines so that the money remains in the banking system.

"Most of our problems will be over if we revive investment. Investment must be revived across the board small, medium and large industries. Sentiment is only one factor.''

''Sentiment will change if the other issues are addressed.'' He said the bank chairmen have been candid and they have identified a number of issues such as fuel supply agreement, delay in clearances and approvals, land acquisition and government entities like NHAI and SEBs not making payment in time. A certain amount of choking in supply of credit.

"These are issues which have been identified as inhibiting. I will take up the issues with ministries concerned. Once we get the investment cycle going, once we get the investment engine started many of our problems can be solved. We have asked the banks to focus on sectors that deserve credit," the minister said.

Asserting that the EMIs should be kept at affordable levels, Chidambaram said, "the middle class is complaining about increasing EMIs and stretching payment cycle. The middle class, which consumes consumer durables postponing purchases, and that is not good for the industry".

He said just as investment plans must be brought forward, consumers must be encouraged to buy consumer durables that will keep the engine of manufacturing.

"EMI must be kept at affordable level so that people will buy two wheelers, cars, refrigerators, washing machines, cooking ranges, mixies and grinders.''

"That will keep the engine of manufacturing going and large industries continue to produce these goods. The suppliers of parts and accessories in the small and medium enterprises will continue to do business," he said.

Chidambaram cited the example given by the State Bank chairman that cars sales picked momentum after reduction of EMIs. SBI was selling 400 cars per day when the EMI was Rs 1,766 per lakh per month for seven years loan.

The sales jumped to 700 cars per day, when the EMI was brought down to Rs 1,725. It shot up further to 1,200 cars, once the EMI was further reduced to Rs 1,699.

"I have urged the other banks to look at SBI example," the Minister said, adding "the point is well taken."