RPT-UPDATE 1-India's fiscal stimulus will stay, prudence need

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By Tony Munroe and Rajkumar Ray

NEW DELHI, Nov 3 (Reuters) - India will maintain its fiscal stimulus as there is economic uncertainty because of the poor monsoon and the global outlook but fiscal prudence was still needed, the finance minister said on Tuesday.

Pranab Mukherjee said there was a distinct sign of pick-up in India's economy, and said banks have been told to boost lending as non-farm credit growth remained an area of concern.

India's economic growth slowed to 6.7 percent in the fiscal year through March after three straight years of at least 9 percent, and government officials have said growth in the current year is on track for roughly 6.5 percent.

"For the present I maintain that the fiscal stimulus will have to continue, to allow its impact to fully run through the economy," Mukherjee told the annual Economic Editors conference.

"It is, however, an imperative to come back to the path of fiscal prudence, as soon as the current economic circumstances permit us to do so."

Mukherjee said a return to 9 percent growth path would take more than a year.

The finance minister's comments came a week after the central bank laid the groundwork for a rise in interest rates by tightening credit to the commercial property sector, lifting its inflation forecast and warning of asset price bubbles.

The Reserve Bank of India (RBI) left key interest rates on hold but surprised markets by removing emergency liquidity support measures implemented in 2008 to protect Asia's third-largest economy from the global downturn. [ID:nDEL485971]

Policymakers including Prime Minister Manmohan Singh have pressed the case for keeping easy fiscal and monetary policies in place to nurture growth in Asia's third-largest economy.

MEDIUM TERM

Mukherjee said he was confident of attaining fiscal targets for the medium term and expected higher tax receipts in the second half of the fiscal year ending March 2010.

The government plans to borrow a record 4.51 trillion rupees ($95 billion) this year to finance a fiscal deficit of 6.8 percent of GDP, which is the highest in 16 years.

The finance minister said the government had identified a few more state-run companies that it could sell stakes in, with the timing of any sale dependent on market conditions.

Mukherjee said it was imperative for the government to pursue reforms, including in the financial sector, to make the economy more competitive and the economic regulatory and oversight system more efficient and more sensitive to new developments. ($1=47.4 rupees) (Writing by Surojit Gupta; Editing by John Mair)