Fiscal stimulus to stay, summer crop seen down

But Mukherjee also said there were distinct signs of pick-up in Asia's third-largest economy, with banks told to boost lending as non-farm credit growth remained an area of concern.

"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."

India's economic growth slowed to 6.7 percent in the 2008/09 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.

Government data showed the summer-sown grain harvest could fall 18 percent from a year ago, after the worst monsoon in 37 years damaged sugar cane, rice and oilseeds.

Cane production in the world's largest consumer of sugar is set to fall nearly 9 percent, the government's first estimates of the summer-sown crop harvest showed.

Mukherjee said returning the economy to growth of 9 percent would take more than a year, adding that the poor monsoon and then floods in some parts of the country had obvious implications for agriculture and food prices.

FISCAL PRUDENCE AND REFORMS

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.

Policymakers including Prime Minister Manmohan Singh have pressed the case for keeping easy fiscal and monetary policies in place to nurture growth.