Warning that over 8.0 per cent growth may not be sustainable in the future, global rating agency Moody's on Tuesday said Indian economy was expected to slow down to 6.5 per cent.

Though it noted that India's external liquidity position was 'strong,' as reflected from current foreign currency ceiling for debt and stable outlook, Moody's latest report, however, said high oil prices and import growth may lead to current account deficit in 2004-05, but could be fully financed.

"While economic growth is not expected to continue at the pace that was achieved in 2003-04, we anticipate that annual growth will average a still respectable 6.5 per cent in the years ahead," the report said.

However, the report said even at 6.5 per cent, India was likely to attract much more capital in the future.

Moody's attributed the recent buoyant growth to the surge in farm productivity, after the country last year received good monsoon rains and reported increased output in industrial and services sector.

However, Moody's said the growth would be difficult to maintain unless the country increases investment in human resources and infrastructure and addresses the growing fiscal imbalances.

Expressing concern over fiscal deficit of the central and state governments -- their combined debt amounted to 85 per cent of GDP -- Moody's said the new government would incline to additional economic adjustments.

"While the debate between the ruling BJP-led NDA and the Opposition has not revealed any specifics about what economic policies either group would pursue, Moody's expect that the next administration will be favourably disposed to additional economic adjustments, including aggressive fiscal tightening," the report said.

It said the willingness of politicians to correct the worsening fiscal situation has traditionally been lacking.

On the external front, it said, "with high oil prices and import growth, the current account surplus might revert to modest deficit of one per cent of GDP in 2004-05, but this could be more than fully financeable."

It, however, said workers' remittances and software and other services exports were expected to offset robust import demand and keep the current account in 'rough balance' during the next two years.

India's balance of payments also enjoys protection from controls on capital movements, which is reinforced by improving investment prospects, it said.

The report added that the government's large (foreign exchange) reserve cushion was 'providing increasing room for a gradual easing of foreign borrowing restrictions and other capital market controls.'