World Bank on Wednesday warned that a prolonged war in Iraq may adversely affect India's GDP growth prospects in this fiscal.

"India's GDP growth depends on the outcome of the war. If war continues for a long time and oil prices continue to rise, it could affect the country," William Shaw, lead economist of World Bank's international finance team, told reporters after launching the 'Global Development Finance 2003' report.

Although the bank did not like to make any forecast linking the war right now, Shaw said oil prices were extremely volatile due to the war in Iraq.

Since India is a net importer of oil, it could affect the country, he added.

Commenting on the Global Development Finance report, he said, "War has added more bumps to an uneven global expansion."

This was mainly due to higher oil prices, falling consumer and business confidence, increased volatility in financial markets and higher fiscal deficits, he said.

Moreover, he said war may have an impact on remittances flow as well.

Otherwise, World Bank projected an average 5.3 per cent economic growth for India and other South Asian nations during 2003, which is marginally lower than 5.4 per cent projected in December 2002.

As per the World Bank's projected growth figures, South Asia is well ahead of the average growth of all developing nations slated to grow at 4.0 per cent and global average of 1.8 per cent during 2003.

The bank also said foreign direct investments and remittances outpaced debt as a source of financing developed nations.

The World Bank report said a combination of poor weather, geopolitical insecurity, a subdued external environment, especially weak European demand, led to a dampening effect on the South Asia economy in 2002.   

"At 4.9 per cent, growth was well below the region's potential for a third successive year," it said.

On the positive side, it said there was reduction in military tensions between India and Pakistan and a ceasefire in long-running civil war in Sri Lanka.

The World Bank, however, cautioned India and its neighbours on the fiscal situation, saying, "Investments will remain cautious pending more solid progress in reform process, while larger and persistent fiscal deficits have left little scope for substantial increases in government outlays."

Gains in exports in the second half of 2002 augured well for the region, it said, adding, "Private consumption could rise substantially with a recovery in agri income."

Manufacturing sector in India was showing signs of an incipient upturn and the burgeoning Bangalore-based IT sector has experienced much less disruption in demand than high-tech sectors elsewhere.