The Finance Minister, P. Chidambaram’s ‘advice’ to public sector banks to cut their base lending rates highlights the classic dilemma facing governments as both upholder of public interest and owner of firms – which, in this case, happen to be listed as well. There is no doubt that in the current circumstances, a cut in interest rates will do no harm to the economy. At the least, it will help companies to partially offset the cost push pressures from the rupee’s weakening and higher fuel prices, which they are unable to pass on in a weak demand environment. Thus, from a public interest perspective, Chidambaram’s resort to moral suasion is quite justifiable. But from the banks’ standpoint, a cut in base rates – below which they cannot lend – is easier said than done.........
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