Mumbai: Finance minister Arun Jaitley urged the nation’s central bank to cut the benchmark interest rate to help jumpstart the $1.9 trillion economy, citing inflation that cooled to the slowest in eight months.

“Inflation is under control, and hopefully the impact of inflation being under control is a fact that the central bank in all its wisdom will take note of," Jaitley told a conference in Mumbai on Tuesday.

This is the second time in less than a week the finance ministry has pushed Reserve Bank of India Governor Raghuram Rajan to add to this year’s three interest-rate reductions to bolster economic growth. Rajan has maintained that he needs more clarity on whether consumer prices will meet his 6% target for January. India has the fourth-highest borrowing costs among 14 Asia-Pacific countries tracked by Bloomberg.

India’s economy could expand faster and risks to growth would be mitigated if interest rates are lowered, finance secretary Rajiv Mehrishi said on 14 August after data showed the country’s two main inflation gauges in July slowed more than estimated by economists.

Consumer prices eased to an eight-month low of 3.78% in July, while the wholesale prices fell the most on record, according to data released last week.

Jaitley said the nation could expect a good harvest of crops as “the rain gods have been somewhat kind to us this year." That’s in contrast to Moody’s Investors Service’s warning of below-normal showers lowering India’s economic growth to 7% in 2015 compared with an earlier estimate of as much as 7.5% earlier.

Inflation target

Rajan left the repurchase rate unchanged at 7.25% on 4 August after cutting it three times this year. While two of those cuts have come in unscheduled meetings, he’s held rates at three of four reviews in 2015. The central bank expects CPI to hit 4% in August and rise toward the 6% target by January.

Factory output in Asia’s third-largest economy has grown an average 1.6% each month since January 2013, almost half the pace of the previous two years. Credit growth hit a two- decade low in February and exports have shrunk for seven straight months, undermining the government’s efforts to boost investment.

India needs to focus on the manufacturing sector to boost economic growth to 8% cent to 10% Jaitley said.

Bankruptcy rules

The government will complete framing bankruptcy rules and will unveil them “anytime soon," Jaitley said. The rules will help lay out a system to deal with insolvencies and help lenders tackle the highest level of soured credit in 13 years.

Bankers are awaiting a national code that will incorporate laws for resolving bankruptcies including recovering debts from companies that go bust. The finance ministry set up a panel in August 2014 to study the legal framework and to submit a report to the government. Developing such a code will require more time because of the web of laws and adjudicatory forums governing insolvencies in India, the panel said in an interim report in February.

In the meantime, creditors rely on the nation’s Debts Recovery Tribunals that were created under a 1993 law to help financial institutions reclaim loans. The tribunals have been swamped with so many cases that it may take at least another four years to clear them, central bank Governor Raghuram Rajan estimated in November. Bloomberg

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