New Delhi (PTI): Soaring inflation and high interest rates are expected to take a toll on the Indian economy, which is expected to witness a growth rate of 7.5 per cent this financial year against 9 per cent in 2007-08, according to Germany based Dresdner Bank.

"For this fiscal year, we now expect GDP growth of only 7.5 per cent," Dresdner Bank, the banking arm of global insurance major Allianz group said, pointing out that Indian economy has lost further momentum this year with production growth slowing substantially in the first four months of 2008.

Dresdner's projections are much lower than the Finance Ministry's expectations of 8-8.5 per cent GDP growth.

The UPA government has recorded an average 8.9 per cent growth during the first four years of its rule. Last fiscal, the country's GDP growth stood at 9 per cent, compared to 9.6 per cent in the previous fiscal.

For five years starting from 2007, Planning Commission has targeted Indian economy to grow at nine per cent with the terminal year delivering a growth of 10 per cent.

The current rise in inflation and high interest rates have already left a dent on the industry and the production growth rate of the country has substantially slowed down in the past four months. In fact, industrial growth had slipped to 3 per cent in March, but recovered to 7 per cent in April.

"The only segment that is showing some resilience is the services sector, which is still recording double-digit growth rates," Allianz-Dresdner Economic Research said in its latest report on economy and markets.

Inflation was at a modest 3 per cent at the end of the year 2007, and is at present hovering over 11 per cent mark, the highest level in 13 years.