He said the government is using more than three-fold increase in cess on petrol and diesel to fund infrastructure projects like highways, but it will be a challenge to fund higher social sector spending due to increased outgo on salary and pension.

As a lot of people depend on small savings schemes, the Finance Minister said, "we as an elected government have to look at it in addition to the economic principles with a sense of political pragmatism".

Bankers have passed on as little as 20 percent of the biggest rate cut effected by RBI since 2009 as they fear becoming uncompetitive to small savings like PPF and Post Office deposits.

Most small saving instruments pay an interest rate of 8.75 percent, compared to 7.5 percent on deposits at SBI.

Jaitley said the impact of the 7th Pay Commission recommendations for higher salary and pension for central government employees, which will result in an additional annual burden of Rs 1.02 lakh crore on exchequer, would last for two to three years.

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