With the signs of revival in the economy, the interest rates may rise by the end of this fiscal, according to the chairman of the Prime Minister's EAC, C Rangarajan.
He told the media persons (on the sidelines of an international conference on ‘Global Economic Meltdown: Challenges and prospects) that the credit off take was recovering.
Rangarajan said that the capital flow had improved but was less as compared to the previous two years. However, according to him inflows through foreign direct investment (FDI) and foreign institutional investment (FII) would be larger this year vis-à-vis last year.
Further, he indicated a rise in aggregate demand resulting from a series of fiscal steps like a cut in the excise duty and increasing government's expenditure. He said that the government had already extended the stimulus package up to 2010 which could be reviewed later. He cautioned RBI against re emergence of inflation and in the context of accommodative policy he said," "It has to come after definite signs of recovery are visible. But once they are visible, we have to withdraw."
In Rangarajan's opinion, RBI had taken appropriate steps in slashing the CRR , repo and reverse repo rates but despite that the credit growth was slow.
When it came to the central fiscal deficit he was quite optimistic that it would not rise beyond the current level ( 6.8% of the Gross domestic Product). Besides this, he said that the Indian economy would improve and grow between 7 and 8 per cent in the fiscal 2010-11, but would have towait for the global economy to recover to come back on the 9% growth track.