(Reuters)
(Reuters)

Middle-class households, farmers get a breather from RBI

  • RBI said the limit of collateral-free farm loans given by banks will be raised to Rs. 1.6 lakh
  • The budget had also offered relief to the salaried class by way of an increase in standard deduction available to them

New Delhi: Middle-class households paying back loans have got a respite with the Reserve Bank of India (RBI) unexpectedly lowering the policy interest rate by 25 basis points. To make access to finance easier for small farmers, the central bank said the limit of collateral-free farm loans given by banks will be raised to 1.6 lakh, up from 1 lakh now.

The monetary policy committee (MPC) of the RBI cut the repo rate, at which the central bank lends to banks, to 6.25%, beating many analysts who expected merely a change in its stance to ‘neutral’ from ‘calibrated tightening’. The move could spur consumption, encourage manufacturing and boost the economic growth rate.

The RBI said the increase in the collateral-free lending limit to farmers was taken with the view that the overall inflation and rise in agriculture input costs since 2010, when the present limit was set. “This will enhance coverage of small and marginal farmers in the formal credit system. The circular to this effect will be issued shortly," the RBI stated.

The NDA government led by Prime Minister Narendra Modi that earlier took decisive steps to reform and formalize the economy is now seen to be giving relief to sections of society that faced the inevitable disruption caused by structural changes such as the 2016 currency ban and the roll-out of the GST in 2017.

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The RBI’s move that appeals to the sentiment of the middle class and small farmers comes after the interim budget presented on 1 February by Finance Minister Piyush Goyal announced an income tax rebate for those with a taxable income of up to 5 lakh as well as a 6,000 annual basic income for farmers with small land holdings.

In an interview published on Thursday, Goyal said the tax rebate was a gesture of respect to honest taxpayers. The Union budget had sought to provide relief to households ranging from those at the bottom of the pyramid to the upper middle class. The budget had also offered relief to the salaried class by way of an increase in the standard deduction available to them and to those earning interest income by raising the limit of interest that can be earned without tax being deducted at source.

These measures were preceded by tax cuts by the Goods and Services Tax (GST) Council on a host of items aimed at reducing the tax burden on consumers. The federal indirect tax body has in recent months been focusing more on easing the burden on consumers and small businesses than on revenue maximisation. On 22 December, it cut taxes on 22 items, out of which seven were from the highest slab of 28%. Revenue Secretary Ajay Bhushan Pandey told Mint in an interview published on Monday that so far, tax cut benefits amounting to almost 90,000 crore a year have been given to consumers. 

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