"We will be hurt in terms of growth. We think it (oil price rise) hurts growth by about 0.5 per cent a year," Chidambaram, currently on a visit to Singapore, said.
As per CSO estimates, India's GDP is slated to grow by 6.9 per cent this fiscal against the 8.5 per cent in 2003-04.
Ahead of Reserve Bank's slack season credit policy in April end, Chidambaram said he expects interest rates to remain stable over the medium term despite the pressure on prices and bond yields on account of global crude price rise.
"Indian banks are flush with money. There is huge liquidity in the system. In the medium term, I think interest rates will remain stable," he said.
The Reserve Bank kept the benchmark Bank Rate at 6 per cent despite the surge in inflation last year. Following fiscal and monetary measures, inflation has subsided and so has yields on government bonds.
Terming the recent oil price spiral as 'completely unjustified', Chidambaram said a rise in world oil prices would hurt businesses in India, as the country imported bulk of its petroleum requirements.
There was no convincing argument to justify the shooting up of crude oil prices to $57 a barrel, he said. Crude prices, which hit a record high of $57.60 a barrel on March 17, fell to $53.70 on Tuesday.
On fiscal consolidation, Chidambaram said India would resume a path of "fiscal correction" from 2006-07 after a "pause" in the next fiscal.
"In the year beginning April 1, we will not be able to reduce the revenue deficit. We will remain on the pause mode," he said.
Revenue deficit is estimated to be 2.7 per cent of GDP next fiscal, same as that in 2004-05. Fiscal deficit is, however, slated to come down to 4.3 per cent of GDP in 2005-06 from 4.5 per cent in 2004-05.
During his visit to Singapore, Chidambaram met Singapore's Prime Minister Lee Hsien Loong and discussed bilateral investments and progress towards a free trade agreement to be concluded shortly between the two countries.