The decision comes less than a month before the Election Commission is expected to announce the dates for the 2019 Lok Sabha elections and is expected to counter the campaign of the opposition, which alleges that the National Democratic Alliance (NDA) has not done enough to address rural distress.
“The decision of the RBI will bring down EMIs of home loans. It will help the middle class and also boost the construction sector. The government has managed to control inflation in the last four years and the RBI’s move suggests that there is no threat of inflation in the coming months," said Gopal Agarwal, a spokesperson of the Bharatiya Janata Party (BJP).
The RBI on Thursday lowered the policy interest rate by 25 basis points. This would allow banks to pass the lower rates to borrowers, thus impacting EMIs for loans, including housing and automobiles. The rate cut is thus likely to give lending a boost.
Small farmers will also benefit with the RBI announcing the enhancement of collateral-free agriculture loan limit from ₹1 lakh to ₹1.6 lakh in view of the overall rise in inflation and marginal agriculture input cost.
“The decision should not be seen in isolation. The Union government has consistently taken decisions to help farmers and boost the rural economy. The question is not just about increasing output. The idea is to increase the income of farmers. The decision of the government to launch the PM-Kisan programme, increase in minimum support price (MSP), and crop insurance are all steps to increase the income of farmers," Agarwal said.
The recent steps taken by the BJP to pacify the middle class and farmers are important because around 400 of the 543 seats in the Lok Sabha are in rural areas, with only about 140 in urban and semi-urban areas. The BJP had to face the ire of voters, both urban and rural, in the recently concluded assembly elections in Madhya Pradesh, Chhattisgarh and Rajasthan, which it lost to arch-rival Congress.
The BJP-led Union government tried to reach out to the middle class in the recent budget. Finance minister Piyush Goyal announced a tax rebate on income of up to ₹5 lakh and an increase in the amount of standard deduction, two measures that will benefit the salaried class and pensioners. For farmers, the government announced the Pradhan Mantri Kisan Samman Nidhi Yojana, which aims to provide income support of ₹6,000 per year to vulnerable landholding farmer families, having cultivable land up to 2 hectares.
“The interim budget was strategically planned to please all sections of people, especially the middle class, youth and farmers. The Lok Sabha elections are to be announced and the BJP-led NDA (National Democratic Alliance) is arming itself to meet the challenge posed by opposition parties," said a senior BJP leader, on the condition of anonymity. Besides, in December, the Goods and Services Tax (GST) Council had reduced tax rates on 22 items, of which seven were from the highest slab of 28%. The central government led by Prime Minister Narendra Modi has been working to remove items of interest to the common man from the highest tax slab.