1 The downward rigidity of Indian interest rates Raghbendra Jha Abstract This paper tries to assess why lowering interest rates is proving to be hard in India. It singles out the role of three factors: (i) high public debt and the structure of this debt, (ii) the overhang of non-performing assets; and (iii) the policy being pursued with respect to accumulation of foreign exchange reserves. These three factors are causally linked to each other and should not be looked upon as mutually exclusive contributors. All correspondence to : Prof. Raghbendra Jha, Australia South Asia Research Centre, Australian National University, Canberra, ACT 0200, Australia Fax Number: +61 2 6125 0443 Email: r.jha@anu.edu.au