Mumbai: The prime minister's economic advisory council (EAC) has scaled down its GDP growth prediction for the current fiscal (2008-09) to 7.7 per cent amidst rising inflation that it expects to touch 13 per cent by the year-end.

''There are certain factors, both domestic and external, which may add to the slowdown of growth rate, but we still think that the growth rate could be 7.5 to 8 per cent,'' he said.

The Indian economy grew at an average 9.0 per cent during the last fiscal (2007-08).

The inflation rate, which is ruling at a 13-year high above 12 per cent, is expected to end the year at around 13 per cent, C Rangarajan, the outgoing chairman of the EAC, said while releasing the Economic Outlook for 2008-09.

''But, by December, it will start declining and is likely to moderate to 8-9 per cent by March 2009,'' he said, adding, there should be co-ordinated action plan to bring inflation level down to 8-9 per cent by March 2009.

He also suggested continuation of the Reserve Bank's tight money policy until at least price levels start showing effects.

''The tight monetary stance needs to be maintained till the pace of inflation comes down," he said.

Rangarajan projected agricultural production growth in the country falling to 2 per cent in the current year against 4.5 per cent in the last fiscal and industrial production declining to 7.5 per cent from 8.5 per cent. The service sector also is expected to grow slower at 9.6 per cent against 10.8 per cent in 2007-08, he said.

He attributed the fall in GDP growth to the global slowdown and the surging global commodity prices that has affected credit policy decisions.
 
The EAC also said the growing off-budget liabilities, which are estimated at 5.0 per cent of GDP, was posing serious fiscal risks. Both fiscal deficit and revenue shortfall will aggravate, the panel said. It projected a current account deficit at 3.2 per cent of GDP in 2008-09 as against 1.5 per cent in 2007-08.

Rangarajan resigned amid speculations that he is being nominated to Rajya Sabha.

Finance minister P Chidambaram, meanwhile, has called a meeting of heads of public sector banks to take stock of the recent hikes in interest rate.

The meeting comes in the aftermath of the release of the industrial production data that showed output growth slowing down in the first quarter amidst rising costs of borrowing.

Interest rates in the country seems to have peaked after the Reserve Bank of India (RBI) raised its key lending rate (repo) to 9 per cent. Commercial banks have since raised their lending and borrowing rates accordingly.