Worries centre on oil imports

Overall, Mr S Narayan expressed confidence in the ability of India's economic growth to withstand any likely problems.

India's record foreign exchange reserves should help to shock-proof its economy and ensure that any economic pain is "comparatively short-term", Mr Narayan told BBC World Service Radio.

India has reserves of $75bn which are growing at a rate of $1bn a week.

'Tolerable'

India's economy was also protected from the impact of war on trade flows by strong internal demand, he said.

Domestic demand is driving the economy

Mr Narayan said that petrol and fuel prices have already risen in India but were "going up within tolerable limits".

Crude oil prices are on average 60% higher than they were a year ago, when the countdown to a US-led war on Iraq began.

Mr Narayan said India's economy is experiencing "buoyant growth" in services and manufacturing and exports were up 20% on a year ago.

"The major change in the last two years is the steep reduction in interest rates, which is improving the bottom lines of all the corporates," he said.

Buoyant

India's economy was being bolstered by "tremendous internal demand", especially in housing, healthcare, tourism and manufacturing sectors such as automobiles, said Mr Narayan.

Finance Minister Jaswant Singh last month unveiled a budget designed to tackle poverty and give tax relief for the middle class.

The budget, which was well-received by financial markets, focused on building roads and highways and cut tax payments by pensioners.

Tax-breaks for the telecom and pharmaceutical industries were other highlights.

Mr Narayan said the budget would help to stimulate domestic demand in high employment sectors, such as housing, insurance and jewellery-making.

Mr Narayan said fears in 2001 that the economy would be bruised by higher war insurance and costs stemming from the US-led invasion of Afghanistan and later tension with Pakistan have failed to materialise as lower interest rates helped firms to compensate.