Floating interest rates will come down

Existing floating home loan customers groaning under high interest rates can look forward to a more cheery New Year. After setting interest rates at 9.25% for new home loans between Rs 5 lakh and Rs 20 lakh, rates for existing home loans will be reduced as the PLR (prime lending rate) comes down.

Home minister P Chidambaram, speaking for Prime Minister Manmohan Singh, who now holds charge of finance, told Lok Sabha, “Floating interest rates must come down. The loans for existing home loans will be reset as the PLR is reduced.”

Chidambaram said that steps had been taken to address the liquidity crisis but banks remained risk averse while those seeking home loans were deterred by the 12-13% rates being currently charged. “I am sure that banks will sincerely attempt to reset the floating rates,” said the minister, who till recently held the finance portfolio.

Government’s signaling is significant for political as well as economic reasons. As Chidambaram explained, the housing sector is a critical part of the economy as “it concerns steel, cement, bricks, electrical equipment, labour of various kinds… it is a major driver of the economy”. But also, with general elections not too far off, the government needs to address a constituency which has been grumpy over soaring EMIs and lengthening loan tenures.

In a debate that saw all-around concern over falling employment, Chidambaram sought to assuage fears that the tunnel was growing longer and darker. He said India would still grow at 7% at the end of the next year even though he said the process of structural adjustment would not be painless. “Steel demand is down so it is bound to affect production. If we don’t lift some curbs on exports, people will be thrown out of jobs,” he said.

As he intervened in a discussion on economic situation in the House, Chidambaram largely covered ground that he had already been over previously, taking on the NDA criticism by reeling out growth figures for the years the Opposition had been in power and offering a comparison with UPA’s statistics. He also, as he has before, pointed to massive outlays for the social sector to argue that UPA had done more for farmers and the poor.

Chidambaram said UPA’s flagship schemes were aimed at those who lived in extreme poverty, a number he put at between 250-300 million. He admitted that a programme like PDS suffered from a leakage of 40% while complaints of forged muster rolls hurt the National Rural Employment Guarantee Act, but argued that there was no option but to persevere with such initiatives.

He said the large government spending was helping the economy while the social sector programs were a crucial safety net for the poor. Touching on recent measures to respond to the financial crisis, he said the government had taken some rapid-fire decisions in the last 12 weeks.
He used the opportunity to take a shot at the Left and also, by implication, those in Congress, who had been wary of celebrating India’s growth story for fear of being seen as “anti-poor”. “You must be consistent both ideologically and in your suggestions,” he said as he expressed a sense of satisfaction over “a fall in growth of 1-2% agitating the minds of MPs”.