Inflation, hovering above the six per cent mark, too would come down to 5-5.5 per cent with moderation in food prices, it said in its India Outlook 2007 report.

"The effect of monetary compression by Reserve Bank would show up 2007-08 and the growth would moderate in the range of 7.9-8.4 per cent," Crisil Chief Economist Subir Gokarn said.

Though global factors including a slowdown in US economy and drop in growth rates in China could be influencing factors, the growth momentum was more vulnerable to high inflation and overheating in the domestic economy, he said.

The Indian economy grew at an average rate of 8.6 per cent between 2003-04 and 2006-07. This is not only the strongest ever growth stimulus in India since its independence but also puts it in the league of the fastest growing economies in the world, the report said.

Crisil estimates the risk of fiscal slippage at Rs 50 billion, which is about one percentage point of GDP. It expects the 10-year G-Sec yields to be at 7.8-8 per cent while the Rupee/Dollar exchange rate to be stable in the band of Rs 44-45 in 2007-08.

On further hardening of interest rates, Gokarn said that RBI has signalled that a GDP growth of 8-8.5 per cent with inflation range of 5-5.5 per cent were compatible.

"We could expect RBI to use various measures if any one of the variables go out of the range," he maintained.