A prolonged war in Iraq would shake the Indian economy with oil prices going up and growth rate dropping to 2.5 per cent, A C Muthiah, the president of Federation of Indian Chamber of Commerce and Industry, said on Thursday.

"If the war goes on for three months, it is gloom. Because 60 per cent of India's oil requirements is being imported and oil prices will go up by 45 per cent. Our growth rate will drop to 2.5 per cent," he said at the inaugural of Ficci seminar on VAT (value-added tax) in Bangalore.

According to a Ficci research, he said, if there was a short-term war of a week, prices would shoot up by 9 per cent.

But, Muthiah also said Indian engineering firms would get enormous opportunity in rebuilding Iraq in the aftermath of the war.

"The aftermath of the war will create great opportunities for Indian engineering companies. We should be prepared to use Dubai as an entry point for steel and construction companies to supply relevant material," he told reporters on the sidelines of the conference.

He said the international oil prices would drop to $22 to $25 per barrel if there is a short war.

Confederation of Indian Industry, however, said that the US-led war in Iraq would not have a lasting impact on the country's economy as it perceived the war to be of a short duration.

"We don't expect it to be a long duration war. If the war gets over in over four weeks, then there will be no lasting impact and it clearly does not need the industry to revise the six per cent growth target," CII president Ashok Soota said.

Soota, however, said irrespective of the duration, the war would adversely affect the travel and tourism sector.

Other than that, there will be no significant impact on any other sector in short term war, he said.