Reserve Bank of India Governor Bimal Jalan said on Monday the economy was likely to grow 6 per cent in the current financial year on the back of higher farm sector output.

"Based on the monsoon forecast of 96 per cent of average rains, I expect a growth of about 6.0 per cent," Jalan told reporters.

The Indian economy, Asia's third largest, grew a meagre 4.4 per cent in 2002-03 (April-March) following the country's worst drought in 15 years.

India's weather office has predicted the June-September monsoon rains to be 96 per cent of the average in the current year. Monsoon rains are vital for India's farm sector which accounts for a quarter of its gross domestic product.

The farm sector provides income to about 70 per cent of the country's billion plus population and is heavily dependent on rains in the absence of irrigation facilities.

Jalan said the weather office's monsoon prediction was enough to jumpstart the farm sector and output would grow between 4.0-4.5 per cent in the current financial year.

"If it is 96 per cent then we should on a low base see an increase in agricultural production of at least 4.0 to 4.5 per cent," he said.

Last year's drought damaged crops in large parts of the country and pulled down farm sector output. It shrank 3.1 per cent in 2002-03 (April-March) compared with growth of 5.7 per cent in the previous year.

Jalan said inflation at the end of 2003/04 was likely to be between 5-5.5 per cent and prices were expected to ease from the beginning of July.

"This is based on present expectations as there has been a sharp fall in international prices of oil compared to March-end and the 96 per cent monsoon expectation," Jalan said.

India's widely-tracked wholesale price inflation has been hovering at two-year highs but eased slightly in the week ended April 5 at 6.17 per cent from 6.24 per cent and analysts expect it to ease further as the war in Iraq comes to an end.

Jalan said he expected oil prices to stablise at around $22-23 a barrel in the current financial year.

India imports 70 per cent of its crude oil requirements and any increase in prices hurts the economy, sending prices soaring.

Jalan said the government was considering pre-payment of high cost debt taking advantage of high foreign exchange reserves.

The central bank said India's foreign exchange reserves rose to $75.751 billion in the week ended April 11 from $75.040 billion the previous week.