"We have to ensure that interest rates move southwards through better fiscal management both at the states and the Centre", Kelkar said at a meeting with industrialists in Delhi on Monday.

Stating that the current interest rates were high, the finance secretary told the meeting on `industrial slowdown' organised by Confederation of Indian Industry that interest rates would become the dominant instrument for revival of growth.

The finance secretary said reducing the cost of capital was the only way to bring more private investments as public sector investment was not likely to go up sharply in the near future.

Kelkar also called for greater "vigilance" on exchange rate to make exports competitive and boost domestic demand. "We have to continue our vigilance on exchange rate to ensure that the exports continue to be amajor source of demand," Kelkar said listing out the government's programme to revive economy.

Kelkar, however, did not elaborate on the government's view on exchange rate, except for saying "we are going to be very vigilant on the exchange rate as explained in the economic survey."

The survey had said that there was a need to monitor closely the value of the rupee to ensure that exports continue to be price competitive.

Kelkar said the main reason for the current slowdown was decline in all sources of demand, which the government tried to reverse in its last Budget.

He said the stimulants provided in the Budget would bring a turnaround in the economy by reviving demand.

The finance secretary said the concession given to mutual fund sector in the Budget was part of attempts to bring back retail investors to capital market.

Retail investors have lost their trust in the capital market and are looking for other avenues of investment, he said.

Despite a negative rate of return on investments ingold, $seven billion per annum was going into it, Kelkar said adding that the government is trying tap this source through the gold scheme announced in the Budget.

On agriculture, Kelkar said the sector would form an important part of the second generation reforms, which are likely to be set in motion soon.

Earlier, making a presentation on the slowdown, Jairam Ramesh, secretary of Congress economic affairs committee, said the main reasons for the downturn were investment slackness and slow restructuring of the Indian industry.