New Delhi: Indian Industry on March 18 expressed apprehensions that a military action by the US in Iraq would have a cascading effect on the economy, which would suffer high oil prices, ballooning inflation and a lower industrial growth.

Apex chambers of industry and trade, however, felt it would not be a prolonged war.

The Federation of Indian Chambers of Commerce and Industry (FICCI) president A C Muthiah said even if it was a short duration war, the domestic oil prices would shoot up by around nine per cent in 2003-04 as compared to the 5.5 per cent increase estimated for a year ago.

"A nine per cent increase in the domestic oil prices has been projected in the event of Iraq war and the Rs 8,116 crore oil subsidy budgeted for 2003-04 was not adequate enough to bridge the gap," Muthiah said.

However, the Confederation of Indian Industries (CII) said in case of short duration war, the impact would be limited to disruption of only two million barrels per day of oil produced by Iraq with no other disruptions.

"In this case, we are factoring in only a moderate increase in oil prices," CII said, maintaining that the impact would depend on the extent of disruption created by the war.

The CII also raised concern over the safety of about 3.8 million Indians working in Gulf.

"Irrespective of short or long war, software exports from India may be hit as the recovery of US economy could be delayed."

The FICCI president said, "The budgeted oil subsidy of Rs 8,116 crore in 2003-04 is inadequate to fully provide for the increase in the oil prices and a hike of nine per cent in domestic oil prices is needed to cover the shortfall.

"A short war ending in a few days might result in moderate increase in oil prices," he said.

In case of long war, he feared a push up in the average oil prices to around $ 40 a barrel, thus making a "major negative impact on the Indian economy, especially industry".

CII also said, "A prolonged war may dampen the growth prospects… basically nipping the growth in the manufacturing sector and reducing gross domestic product (GDP) growth by something like 0.75 per cent."

In case of worst war scenarios, CII said Persian Gulf would be effectively shut down apart from blocked sea lanes, which will hit high energy consuming nations including India.

"Higher oil prices will see a sharp increase in forward premiums on the Dollar currency and exchange rate could head southward and rapidly hit Rs 50 a Dollar," CII said adding, "If it comes close to Rs 50 and is speculation driven, Reserve Bank of India (RBI) may be forced to intervene."

CII also predicted that overall inflation may rise moderately from 2.5-3.0 per cent in 2002-03 to 4-4.5 per cent in 2003-04 in case of rising fuel prices on account of higher oil prices.

The other concerns raised by the industry were the burgeoning level of subsidy and the rise in oil imports bill.

PTI