India's economic growth is expected to slow to 8.5-8.7 per cent in the year to March from 9.4 per cent a year earlier as high interest rates and erratic power supplies affect factory output, an industry body said in a report on Saturday.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) also said uneven monsoons that flooded some parts of the country but left others with little rain could dent farm output.
India's central bank has forecast 8.5 per cent GDP growth in 2007/08, and it has been tightening monetary policy since June 2006 to fight inflation in the fast-growing economy.
ASSOCHAM said rising interest rates, erratic power supplies and the uneven monsoons pushed up input costs and impacted on industrial production and prices.
"Despite moderation in inflation and industrial production maintaining a steady pace, the GDP growth rate is likely to stay between 8.5 and 8.7 per cent in 2007-08," it said.
Last week, government data showed India's industrial output grew by 9.8 per cent in June from a year earlier, down from 10.9 percent in May, as high interest rates cooled demand.
ASSOCHAM said high rates and a stronger rupee were squeezing exporters' profit margins.
The industry body urged the central bank to bring down interest rates to spur both external and domestic demand.