The government is scheduled to unveil a second stimulus package on Friday.

Trade Minister Kamal Nath had last month said the government was looking at more steps to boost liquidity, and mulling steps to help exporters and the real estate and infrastructure sectors as part of the fresh package.

In a letter to the prime minister, S. Jaipal Reddy, India's minister for urban development, said interest rates for home loans of up to 500,000 rupees should be kept at 6.5 per cent, while loans between 500,000 rupees and 3 million rupees should be levied interest of 7.5 per cent annually.

Domestic demand for real estate has fallen sharply amid high lending rates and tight liquidity.

In December, an industry lobby had said transactions had fallen 80 per cent, pulling down prices, and that projects had failed to take off with banks not willing to lend to the sector.

Reddy also said that the ceiling for income tax rebates on interest paid on home loans be raised to 300,000 rupees from 150,000 rupees currently.

"Housing projects should be treated at par with the infrastructure sector for all purposes including bank funding," he said in the letter, a copy of which was made available to Reuters.