India's economic growth may dip in the latter half of this fiscal from 5.8 per cent recorded in second quarter, mainly due to decline in rural demand following drought, Institute of Economic Growth warned on Wednesday.

"The current growth in manufacturing and also the overall gross domestic product may not be sustained given the decline in rural demands following drought, which is expected to show up in the last two quarters of 2002-03," IEG said in its Monthly Monitor.

The economic think-tank attributed 5.8 per cent growth in GDP in the second quarter over 5.3 per cent during July-August 2001, to impressive growth in manufacturing (6.4 per cent), financing (8.9 per cent) and construction (7.2 per cent).

"It appears that the impact of drought has not made a significant impact on other sectors," it said.

IEG forecasted that Index of Industrial Production (IIP), which was 3.7 per cent in November, would be growing by around 5.5 per cent during the next three months.

"Subdued inflation rate and existing demand constraints must have led to deceleration in IIP in November. The impact of drought is expected to affect industrial growth adversely in coming months. Moreover, expected increase in world oil prices would also affect industrial performance," it said.

The IIP would grow by 5.1 per cent in December, 5.7 per cent in January and 5.6 per cent in Februray, it added.

Although IEG projected 3.3 per cent inflation rate during the next three month assuming stable oil prices, it said, "If world oil prices rise to $40 a barrel following possible military strike of United States on Iraq, then forecast for WPI inflation for next three months would be 3.5, 3.2 and 4.0 per cent."

Interest rates in the country are expected to fall further with prime lending rates of banks slated to come down to 10.87 per cent in February end from 11 per cent now, IEG said.

Exports, which grew by 15.6 per cent in November, is likely to slow down to 8.9 per cent in the next three months while imports was likley to grow by 14 per cent.

Rupee is likely to depreciate slightly to Rs 47.90 a dollar mainly on account of the widening trade deficit, increase in world oil prices and decline in foreign portfolio investments, it said.

However, the forex reserves are slated to touch $76 billion by the end of March 2003, IEG said but cautioned that high trade deficit and higher fuel prices may curtail the growth in forex inflows.