This government flaunts its commitment to the market economy—and then tries to rig some price or the other in a fit of schizophrenia.
This week, there was one more instance of meddling. Finance minister P. Chidambaram told the heads of public sector banks on 1 August that they should try not to increase lending rates, even as the Reserve Bank of India has tried to tighten the monetary screws in its new policy. This is not the first time that he has tried to talk down the price of bank credit.
This advice is in contrast to what the central bank has been trying to do in recent months—cut credit growth by, among other things, raising interest rates.
If banks do take his advice seriously, they have two options. One, bring down deposit rates to protect margins. Two, settle for lower profits. In effect, either depositors or shareholders are being asked to subsidize those who borrow money from banks.