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September 28, 2001
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Reddy panel report on interest rate soon: Sinha

Y V Reddy Committee set up to link administered interest rates to inflation will submit its report in the next few days, Finance Minister, Yashwant Sinha, said on Friday indicating the government's commitment to move towards the 'softer interest rate regime'.

"The committee (Y V Reddy) will soon give its report," Sinha said, adding the government wanted administered interest rates to be linked to inflation.

The country cannot afford to have low inflation and high interest rates if the government was committed to move towards a low interest rate regime to spur investment and growth, Sinha told Doordarshan in an interview.

The main purpose of linking administered interest rates to inflation was to create a favourable atmosphere so that Reserve Bank of India could reduce the interest rates. He, however, clarified that it was the domain of RBI to increase or decrease interest rates.

In the Budget, the government reduced administered interest rates by 1.5 per cent on contractual savings like provident fund, postal and other small savings schemes in a bid to have soft interest rate regime to spur industrial growth.

The Reddy Committee, set up soon after, would submit its report in a day or two, Sinha said.

Admitting that the economy was passing through a difficult phase due to slowdown coupled with economic impact of the September 11 terrorist attack in US, Sinha said there are apprehensions that the fiscal deficit could go beyond the targeted level of 4.7 per cent of GDP this fiscal.

With revenue buoyancy lately along with a concerted effort by the government to cut wasteful expenditure, Sinha said, he would be able to keep fiscal deficit under check.

"We will not allow fiscal deficit to go out of control and the effort is to try to keep it close to the target by raising productivity in all spheres of activity," he said.

On downsizing of Government as recommended by Expenditure Reforms Commission, Sinha said, he would soon come out with a voluntary retirement scheme for government employees.

He, however, did not expect VRS to have any impact in reducing government expenditure this year.

Already, the government was taking steps to reduce staff strength by about 100,000 employees annually by recruiting only-one third of the retiring employees,

Every year three per cent of 4 million non-defence government employees retire. Only one per cent is recruited every year as part the downsizing exercise.

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