Days after Reserve Bank of India (RBI) Governor Raghuram Rajan said rate reduction on small savings such as Public Provident Fund (PPF) and post office deposits would bring down the cost of fund for banks, Finance Minister Arun Jaitley on Thursday said the government will move "cautiously" on this front.

Speaking at the Hindustan Times Leadership Summit, he said, "It has always been suggested by RBI. The Governor of RBI even publicly suggested it and that also has been a view expressed by a lot of very reasonable people… that small savings rate must come down."



As a lot of people depend on small schemes, the FM said, "We, as an elected government, have to look at it, in addition to the economic principles, with a sense of political pragmatism." Citing the Sukanya Samriddhi Scheme, which offers the highest rate of 9.2 per cent, he said, "if after one year, you slash it down radically, it may not be very politically prudent and therefore, you have to move in that direction but a little cautiously".

RBI and banks want small savings rates to be in line with the market rate for effective transmission of monetary policy.

Jaitley said despite a spike in expenditure due to the recommendations of the 7th Pay Commission and the implementation of the One Rank One Pension (OROP) scheme, the government will achieve the fiscal deficit target while maintaining the quality of fiscal consolidation.

"We are not worried about achieving the fiscal deficit target. This year, not only the fiscal deficit target will be achieved, the quality of fiscal deficit will also be maintained which has been in suspect in the past," he said.

The government has set a fiscal deficit target of 3.9 per cent of GDP for the current fiscal ending 31 March and 3.5 per cent of GDP for 2016-17.

On the delay in goods and services tax (GST), Jaitley said there have been instances in the past wherein some bills have faced a delay in the Rajya Sabha, but they have never been indefinitely stalled. Talking about GST rates, Jaitley said some luxury and pollution-causing goods should be taxed at higher rates compared to other goods.

"Congress's demands that the GST rate should be capped at 18% and included in the Constitution amendment bill itself will mean that these goods will not be taxed at higher rates. These goods should pay higher taxes," he said.