India's economy will grow at the slowest pace in a decade in the current fiscal year, according to forecasts by the Finance Ministry, which predicts inflation will slow enough to allow interest-rate cuts.

Asia's third-largest economy will expand about 5.7 percent to 5.9 percent in the year through March, less than an earlier estimate of as much as 7.85 percent, the ministry said in a mid- year review presented in Parliament today. That would be the smallest gain since the year ended March 31, 2003, when gross domestic product grew 4 percent.

The Reserve Bank of India, which decides on monetary policy tomorrow, has so far resisted calls from Finance Minister Palaniappan Chidambaram for lower rates, opting to keep the repurchase rate at 8 percent to damp inflation in October while reducing the cash reserve ratio. Stocks fell after the government cut its growth forecast, paring gains made in recent weeks as India stepped up efforts to push through a policy overhaul and attract foreign investors.