India's large foreign exchange reserves can cushion a short-term jump in oil prices, but a long drawn conflict in Iraq could hurt the economy, a top government official said.

"If it's a limited war, the price of petroleum may go up for a short while," Ashok Lahiri, the government's chief economic adviser, told Reuters in an interview late on Monday.

"Given our comfortable foreign exchange reserves we have no reasons to worry unduly."

The reserves at nearly $73 billion, among the largest in the world, was sufficient to pay for more than a year's imports.

But Lahiri said if the war is prolonged it would have an impact on the economy.

"If it is a long duration war then of course the economy will be affected," he said.

The Indian economy, Asia's third-largest, is expected to slow down to 4.4 per cent in the current year ending on March 31, from 5.6 per cent in the previous year.

The government expects GDP growth in 20030-04 (April-March) at 6.0-6.5 per cent.

India imports 70 per cent of its crude oil needs or 1.7 million barrels a day. Every dollar rise in crude prices inflates the oil import bill by $620 million a year.

Economists say the inflation rate climbs half a percentage point with a one dollar per barrel crude price rise.

US light crude was trading at $37.4 per barrel on Tuesday, below its recent peak of $39.99.

Indian officials say the country has oil stocks to meet demand for 35-40 days and enough crude to keep refineries running for a month if there is disruption of supplies from the Middle East, which accounts for two-thirds of Indian imports.