Economy improving says finance ministry, RBI to take call on rates

Exuding confidence that economy will improve in second quarter of current financial year, the finance ministry has said steps would be taken to incentivise growth and that the Reserve Bank of India (RBI) will take a call on interest rates.

"As we are seeing growth clawing back, I am quite sure that the environment will be conducive for further incentivising of growth and we will see whatever steps have to be taken," Economic Affairs Secretary Arvind Mayaram said.

The economy grew at a four-year low of 4.4 per cent in the April-June quarter of current year.

"The Q2 GDP growth should be better than first quarter... The Finance Minister has said we need to incentivise growth. That continues to be the stand of the government. As far as the interest rate is concerned, it is completely the domain of RBI and the Governor will take a call on that," Mayaram said.

The central bank is scheduled to announce its second quarter policy review on October 29.

As for the current account deficit (CAD), Mayaram said it was expected to be less than $70 billion or 3.7 per cent of GDP for the full fiscal. "We would certainly hope the CAD would be less than $70 billion. The $70 billion CAD will be fully and safely financed without any recourse to dipping into reserves," he said.

CAD, which is the difference between inflow and outflow of foreign funds, was at 4.9 per cent of GDP in the April-June quarter.

"The elevated level of CAD in Q1 is mainly due to gold import... Gold imports this year would be restricted below 800 tonnes," Mayaram said.

On the impact of US shutdown, he said: "We hope the impasse will be resolved so that there is no spillover to the global economy. As of today, I don't see any major impact on the Indian economy on that account".