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The economy is likely to grow by 6.5 percent in 2009/10 with inflation at around 6 percent by the end of March 2010, a government panel said on Wednesday.

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The Prime Minister's economic advisory council also forecast a consolidated fiscal deficit, which includes shortfalls at the state level, of 10.09 percent of GDP in the current fiscal year, compared with 8.6 percent last year, and the influential panel urged a return to fiscal consolidation.

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The Indian economy grew by 6.7 percent in the fiscal year that ended in March, slower than the 9 percent or more in the previous three years.

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On Tuesday, Prime Minister Manmohan Singh said the economy could grow between 6 and 6.5 percent in the year to March 2010, despite uncertainty over global economic recovery.

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The panel of advisers headed by former central bank governor C. Rangarajan said on Wednesday growth in the current fiscal year would be at least 6.25 percent and could reach 6.75 percent.

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The Reserve Bank of India is expected to keep interest rates on hold when it meets for its quarterly policy review on Oct. 27, with many economists predicting a tightening in rates starting in early 2010.

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The panel said the recently poor summer monsoon would erode farm output in the current fiscal year by 2 percent, although 8.2 percent growth in both the industrial and services sectors would help offset that.

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