Inflation is always a politically-sensitive issue in India

"The 4 to 4.5% forecast will be exceeded. But there is nothing to lose sleep over," senior finance ministry official Ashok Lahiri told reporters.

Inflation is a key concern of Indians who go to the polls next month.

The government recently predicted that India's economy will grow by more than 8% in 2003/04.

Government measures

Mr Lahiri said he did not expect higher inflation figures to result in interest rate rises and that the price of food, including that of sugar, would actually fall.

This is the first time officials have admitted inflation targets for the year ending in March would be missed.

But analysts have long maintained the central bank's inflation forecast was optimistic as prices of most goods continue to rise amid economic growth.

"The government knew it would not meet the estimate but it did not want to fuel inflationary expectations by stating it earlier," said Saumitra Chaudhuri, economic adviser at domestic credit rating agency ICRA.

The government has taken several steps in recent weeks to reduce price increases, including cutting import duties on steel and releasing sugar for free sale.