The country's growth rate is expected to pick up in the second half of this fiscal and reach 6.7 per cent for entire 2012-13, Prime Minister's Economic Advisory Council chairman C. Rangarajan said on Monday.

Stating that there were indications to this effect, he told reporters here that the monsoon had turned out to be better than predictions made a few months ago.

"Our own forecast is that the growth rate of economy in the current (financial) year will be 6.7 per cent, that is a better shape than last year. I think, the growth will pick up in the second half of this year. Enough indications are there," Rangarajan said.

He said the agriculture performance this year would also be better than what was expected a few months ago.

"Therefore, taking all these factors into account, I expect there will be a growth rate of 6.7 per cent in current (financial) year."

Economic growth had slowed to a nine-year low of 6.5 per cent in 2011-12. The GDP growth in the April-June quarter was 5.5 per cent, lower than 8 per cent recorded in same period of last fiscal.

On the diesel price increase, he said it would result in some increase in the wholesale price index as well as other price indices.

"But in the absence of the increase of diesel price, the fiscal deficit would have been higher. Therefore, one has to balance against the other," he said.

He defended the diesel price hike, which has evoked opposition from various quarters, saying it was "appropriate" in the medium term so as to contain 'inflation'.

"Even in the case of diesel, nearly two-third increase in the price of crude oil is being borne by the Government and the oil marketing companies. Therefore, only one-third of increase in the price of crude oil is being passed on (to the customers)," Rangarajan said.

He, however, favoured continuing subsidies to support poorer sections. "I am only saying that subsidies are important in a poor country like ours. I would say that (we need to) keep a watch on the level of subsidies. We should try to keep the subsidies at a level which is around two per cent of the GDP."

Rangarajan said the average growth in the next five years will be 8.2 per cent, with the economy picking up in the later half the period.

"Over the closing period of next five years, the growth rate has to be up to nine per cent, in order to get an average growth rate of 8.2 per cent," he added.

Observing that reforms were a continuing process, he said "We need to make changes to go along to sustain high growth rate. For example, fiscal correction is needed even after the (fiscal) changes that have been made.''

''The fiscal deficit tend to be high. But we need to work towards a process of fiscal consolidation and in turn will require adjustments in tax revenue and expenditure."

Speaking on the sidelines of the Annual Day of Madras Shcool of Economics, of which he is the chairman, Rangarajan described as misplaced apprehensions of small traders on FDI in multi-brand retail.

"India is a very vast country, and there is space for organised retail and as well as small retail. Small retail will have to adjust itself in changing scenario," he said.

To a query on current account deficit, Rangarajan said it is expected to be higher this year, but said the country needs to work towards containing the current account deficit through increase in capital inflows.

"Some of the measures that have been taken to ease capital inflows will enable us to finance the current account deficit.

"But the current deficit itself, in my opinion, may remain high. It will come down from 4.5 per cent of last year to around 3.5 per cent. This itself will be high," he said.