The war in Iraq will have a limited impact on the Indian economy.

Although the US economy was expected to recover, Indian companies would get only sub-contracted reconstruction work in Iraq and would not be major beneficiaries, leading economists said.

The experts, however, predicted a higher GDP growth, with projections ranging from 5.5 per cent to 6.5 per cent.

They also predicted lower inflation and softer interest rates. Export growth would be moderate and was unlikely to reach 18 per cent as in 2002-03, they said.

"The uncertainties caused by the Severe Acute Respiratory Syndrome are difficult to quantify," Suman Bery, director-general of the National Council of Applied Economic Research, said. It was hurting service industries like international finance and tourism, he pointed out.

Arvind Virmani, director of ICRIER, however, feels SARS will have a short-term effect, and that too mainly on China.

The drop in oil prices and the short-term Keynesian effects of reconstruction work in Iraq would, however, fuel recovery, he said. These factors would bolster exports, but growth would be around 10 per cent because of weak demand, he pointed out.

"Now that the war is over, exports to West Asia will resume. Software will not do as well as in the past, but commodity exports will definitely do well," M Govinda Rao, director of the National Institute of Public Finance and Policy, said.

However, a decline in software exports would not affect GDP growth because the weight of software in GDP calculation was negligible, P K Choudhury, managing director of the Investment Credit Rating Agency, pointed out.

On the services side, the hospitality sector is expected to do well.

"Interest rates will be soft, adding to the bottomline of financial institutions. The banking sector's credit offtake is likely to increase, which, together with a stable performance by the insurance sector, will negate the slowdown of software exports on the service sector," Choudhury added.

On the whole, agriculture is expected to do better than last year. "We have not had consecutive bad monsoons in a long time. Assuming a normal monsoon, the value added in agriculture should go up," Virmani said.

"Even a normal monsoon will mean a 4 per cent growth in agriculture," Govinda Rao added.

Virmani said weak demand from the agriculture sector would affect industry in the first two quarters of 2003-04.

This, combined with lower export growth, can hold back industrial growth from crossing 6 per cent. Virmani puts GDP growth in this fiscal at 5.5 per cent.

Bery and Choudhury expect a higher figure. "If oil prices continue to soften and if there is a normal monsoon, the economy should grow at 5.5-6 per cent," Bery said.

Industrial recovery would be powered primarily by declining interest rates and public investment, with private investment taking a back seat, he added.

"With the government continuing to spend on infrastructure and expectations of an agricultural recovery pushing industrial demand, the revival of the manufacturing sector is expected to continue," Choudhury said, putting GDP growth in 2003-04 above 5.5 per cent.

However, Govinda Rao is more optimistic on both counts. Industrial growth would be between 6 and 7 per cent, and the GDP would grow 6-6.5 per cent, he said.

Once the uncertainty on the oil front was removed, inflation was likely to fall from 6 per cent, Virmani said. Choudhury agrees, adding that if agricultural production improves, primary prices will soften, pushing down inflation.

Govinda Rao, however, disagrees. "Industrial recovery, with lower interest rates, will push inflation to 6-7 per cent during the year," he says.