"Our growth story is intact and fundamentals are strong. Our markets have the capacity to withstand the negative sentiments affecting the external world," Mukherjee said while addressing the industry captains at a function organised by the Confederation of Indian Industry (CII).

Mukherjee's comments come in the wake of Standard & Poor's downgrading the sovereign rating of the US government from 'AAA' to 'AA+', a development which raises concerns that investors will lose confidence in the American economy.

Commenting on the sharp fall and partial recovery in stock markets yesterday, the Finance Minister said, "These sentiments in the developed nations affected our markets on last Friday. But we witnessed some recovery already and this is testimony to our capacity for resilience." The Bombay Stock Exchange benchmark Sensex yesterday had plunged over 700 points but recovered some of the lost ground to settle at day at 17,305.87, down 387.31 points.

India has taken several measures to make its markets attractive, robust and vibrant and would continue to do making it an attractive investment destination for foreign capital, the Finance Minister said.

Mukherjee, however, expressed concern over high inflation and said, "Our major challenge in the short-term is inflation, which has implications of sustaining our growth momentum."

Mukherjee said inflation pressures "persist both from higher global commodity prices and domestic structural demand-supply imbalances in several commodities".

Despite the many steps taken by the government and the Reserve Bank of India (RBI), inflation remains stubbornly high. It was 9.44 per cent in June, much above RBI's comfort level of 5-6 per cent.

Referring to tight monetary policy of RBI, Mukherjee said the measures "may end up moderating the growth rate, if they have to be persisted for an extended period of time".
He, however, expressed confidence that economic growth rate during the current fiscal would match the performance of 2010-11.

The economy grew by 8.5 per cent during 2010-11. RBI expects the economy to moderate to 8 per cent during the current fiscal, while the Prime Minister's Economic Advisory Council (PMEAC) had projected a 8.2 per cent growth.

India had recorded over nine per cent growth for three years before the economic crisis hit the world in 2008.

Mukherjee said that India has moved to higher GDP growth trajectory of 8.5-9 per cent and today is the "second fastest-growing economy in the world, and is widely expected to be among the top three economies in the next two decades".

He also called for improving business sentiments to "restore investment growth seen in the years before the global crisis."