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I agree with you. The twin aims of the government are to reduce the fisc and to attract foreign capital.
The latter need not necessarily mean rigid interest rates. Interest rates impact the economy
on many fronts, one of which is reduction in costs. Foreign capital being sought today is
not the interest seeking type, not even the portfolio type. What the Governments actively
woo is the direct investment type, which brings with it management expertise and technical
know how. Foreign capital of this type will welcome reduction in interest rates and consequent
reduction in costs. For internal savings, the impact of freeing interest rates may
not be so positive in the short run, at least. However, the long run is nothing but positive
as reduction in interest rates is bound to genuinely bring down inflation and hence restore
real interest rates to global levels. This will also arrest the decline in capital formation
within the economy, if any is observed. There is a caveat here. The government should allow
market forces to work and allow unfettered competition in various sectors. Only then inflation
will come down.
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