NEW DELHI India's annual economic review Friday warned that a soaring fiscal deficit would need tough action in the year ahead to reverse disappointing economic growth of six percent in the current year, according to AFP.

The survey said economic growth dropped to 6.0 percent in the year ending march 2001 from 6.4 percent in the previous year. The figure was also well below the last budget target of 7.0 percent.

"The economy is currently at a difficult stage. Some problems of growth are likely to be faced in the coming year," said the Finance Ministry's economic survey.

It said irregular rainfall had hit agricultural production and industrial growth had slowed because of a lack of new investment and a fall in consumption.

"The problem is compounded by the persistence of high international oil prices and the slowdown of the American economy, which is likely to affect the rest of the world," the survey said.

It said global oil prices had put pressure on the inflation rate which rose to 8.2 percent by January compared to 3.6 percent at the same time last year.

The survey said the massive earthquake in India's prosperous Gujarat state last month would have an impact on economic growth, although it said most industry in the state had survived the impact of the disaster.

"It is therefore essential that the unfolding economic situation be watched carefully. Measures need to be taken to instill confidence in the economy so that the growth momentum ... can be improved upon," it said.

The survey said the industrial growth rate had slumped to 5.7 percent between April and December in the current financial year.

The survey said the key problem affecting the economy was the high combined fiscal deficit of the federal and state governments, which stood at 10 percent of the economy's production.

It said the high debt level had held back the government from making a significant investment in infrastructure and had kept interest rates high.

"Thus, the (domestic) industry faces extremely high real interest rates of 8.0 to 10 percent, which would be among the highest in the world," it said.

The survey said the budgetary target of cutting the fiscal deficit to 5.1 percent in the current financial year from 5.5 percent last year had come under pressure because of lower tax revenue caused by the industrial slowdown.

It said there was also a "significant shortfall" in the collection of revenue from the privatization of state firms. Only one out of 34 planned privatizations took place in the current fiscal year.

Various austerity measures to reduce capital expenditure kept the overall fiscal deficit under control.

India's level of foreign exchange reserves were comfortable and had reached a record 41.1 billion dollars at the end of January.

Exports also showed strong growth on the back of a fall in the value of the rupee against the dollar and rising foreign investment in the booming information technology industry.

The survey said despite the fall in economic growth for the second successive year, India was still "one of the fastest growing economies of the world."

It said the government needed to step up the pace of privatization, cut subsidies and bring down government expenditure to achieve higher growth.

Anjan Roy, economist with the Federation of Indian Chambers of Commerce and Industry, said the survey showed both positive and negative points.

He said the comfortable foreign exchange levels, surge in exports and fall in poverty levels were the heartening features, while the drop in economic growth and the high fiscal deficit were cause for concern.

"The big picture given by the survey shows it is possible to take some very bold measures to push up the rate of growth," he said, adding that policies for boosting foreign investments could be implemented, AFP reported.