Following its commerce counterpart, the finance ministry, too, has pitched for a cut in policy rates by the Reserve Bank of India in its policy review scheduled for June 18.
This, the ministry said, would spur economic growth, which slipped to a nine-year low of 6.5 per cent in 2011-12.
On what the government felt on the interest rate scenario, Economic Affairs secretary R Gopalan said, "We see a possibility of growth picking up if the interest rates are reasonable." He said RBI would take into account the inflationary situation as well as external factors, while deciding on its interest rate stance in the policy review.
While wholesale price index-based inflation in April was 7.23 per cent, while consumer price inflation, based on retail prices, stood at 10.36 per cent. Food inflation, based on the WPI, stood at double digits.
After growing at 8.4 per cent for consecutive financial years, economic growth fell to 6.5 per cent in 2011-12, primarily owing to a dismal show by the manufacturing sector, as well as a part of the services segment.
Manufacturing contracted 0.3 per cent in the fourth quarter of 2011-12, pulling growth in the quarter down to 5.3 per cent, the lowest in at least 32
The government expects the economy to grow 7.6 per cent in the current financial year.
Earlier, Commerce & Industry Minister Anand Sharma had also made a case for a policy rate cut by RBI, saying it would boost manufacturing.
Gopalan said the economy's growth prospects were improving, due to the falling prices of crude oil and gold imports. These factors would help reduce trade deficit.
The savings rate in the January-March quarter had also shown improvement, he said.
"The government has to address deficit issues if it wants growth to take place.
So, fiscal deficit has to be kept at 5.1 per cent this financial year," he added.
Fiscal deficit stood at 5.76 per cent of the dross domestic product in 2011-12, while the current account deficit is estimated at about four per cent in the first three quarters of that year.
On the rupee, Gopalan said nervousness in the euro zone and crude oil prices had lowered the value of the domestic currency.
The rupee has declined over 20 per cent since January. "I feel the external situation may not deteriorate and with the kind of steps we take, the rupee would not remain at this level," he said.
