Inflation could pull down GDP growth to 7.8%

Gokarn said that the inflation rate was expected to average around 8.5 to 9 per cent during this fiscal.        

Rising inflation, a forecast slowdown in economic growth, and turmoil in the global financial markets have dampened investor confidence and led to foreign capital outflow.        

"This has led the Rupee, which was already under pressure from a rising oil import bill, to depreciate as sharply this year as it appreciated in 2007," the statement said.        

As global market conditions become more stable and oil prices moderate, the Rupee could appreciate to around Rs 41-41.5 vis-a-vis the US dollar towards the end of the fiscal year, the statement said.        

The country's current account deficit was expected to swell to about 2.6 per cent of GDP.        

"Fiscal improvements in the past few years are likely to be reversed this year, due to a surge in oil, fertiliser and food subsidies," the statement said.