Finance Minister Jaswant Singh said on Thursday that the country's economy had successfully weathered the impact of volatility in world oil prices because of the war in Iraq and that the worst was over.

"The military situation in Iraq being what it is today, I know that prices will begin to soften further, so the worst is over," Singh told a bankers' meeting in Bombay.

Oil is India's biggest import, with a bulk of its 1.7 million barrels a day supplied by states in the Persian Gulf region, and is therefore particularly vulnerable to both a sustained spurt in global oil prices and physical supply disruptions.

India's annual inflation based on its wholesale price index rose to a two-year high of 5.56 per cent in the week to March 15, largely on account of the high pre-war crude prices and the impact that high fuel prices had on domestic manufacturing.

Singh said India's economy had overcome the impact of the worst drought in 15 years last year and was now poised to shrug off the impact of the Gulf war and grow at a healthy clip.

"I believe we are going to see growth like we have never seen before and I say it based on hard empirical data," Singh said.

The government has projected 4.4 per cent growth for the year ending March 31, 2003 and expects the economy to expand 6.0-6.5 per cent next year.

But government data released on Monday showed the Indian economy grew a slower-than-expected 2.6 per cent in October-December compared with 6.3 per cent in the year-ago period, hurt by a drought-induced contraction in farm output.