Finance minister P. Chidambaram in New Delhi on Monday. Picture by Rajesh Kumar

New Delhi, March 13: Accusing the previous BJP-led NDA regime of fiscal extravagance, the Congress-led UPA government today claimed that it has lowered the fiscal deficit, increased revenues and encouraged an investment boom.

Admitting that interest rates are hardening, the government today ruled out further cuts in concessional interest rates charged on farm loans.

“The bank rate is at 6 per cent and reverse repo at 6.5 per cent. Interest rates are hardening,” finance minister P. Chidambaram said in Parliament.

In a combative speech in the Rajya Sabha today, the minister said, “Some ground was lost on the fiscal front during the (rule of the) previous government. We tried to retrieve that lost ground... fiscal deficit had touched a high of 6.2 per cent of the GDP in 2001-02, (but) it has been brought down to 4.1 per cent.”

Chidambaram made a plea that the growth momentum should be allowed to continue and nothing should be done “to hinder the booming investment climate”.

According to government estimates, a savings rate of 29 per cent has pushed investments, which, in turn, helped the GDP growth rate touch 8.1 per cent.

Many independent analysts, however, have pegged growth at 7-7.5 per cent.

The Centre for Monitoring Indian Economy has topped the government’s estimates and forecasts a GDP growth rate of up to 8.5 per cent for this fiscal. However, many economists feel hardening of interest rates could impact investments and subsequently the growth rate next fiscal.

Chidambaram said a 20 per cent revenue growth posted in two consecutive financial years meant higher allocations for both physical and social infrastructure and that the economy was on a “virtuous growth path”.

He wanted state governments to help keep up the investment tempo by liquidating their “cash reserves” on state infrastructure building schemes.

Chidambaram said central ministries and departments have been directed to spend from the beginning of the year to avoid bunching of expenditure.

He also warned that ministries not spending 66 per cent of the allocation in the first nine months would be penalised.

He said the government planned to eliminate revenue deficit, or the gap between revenue earnings and expenses, to release an extra 3 per cent of the GDP as investment into the economy.

Kharif loans

The government will soon come out with rules allowing farmers to access loans at 7 per cent for the coming kharif season, which is sown during the monsoon and reaped in early winter.

“From kharif 2006, every farmer in the country should get short-term crop loans at a reduced 7 per cent interest rate from banks. I have convened a meeting of bank chairmen on March 23 for this purpose,” Chidambaram said.

He, however, ruled out further reduction in interest rates as suggested by the M.S. Swaminathan Commission on account of the hardening of interest rates. The agriculture ministry is working out a modified national crop insurance scheme in consultation with the Planning Commission, he added.