Amid worsening of the global financial problems, the Planning Commission today said it may

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settle for a modest growth target of 8.5 to 8.7 per cent during the 12th Plan period as against 9 per cent contemplated earlier.

"We had projected 9.5 per cent (growth) for the 12th Plan and then we scaled in down to 9 per cent... But today I don't feel it will be 9 per cent... But we will definitely move to 8.5 per cent, 8.6 per cent, 8.7 per cent," Minister of State for Planning Ashwani Kumar told reporters here.

He was replying to a query on the likely impact of the current financial meltdown due to the downgrade of US' sovereign rating by S&P and slowdown in major economies and their effect on India's growth target.

Though the government is yet to finalise growth targets for the 12th Plan period, the Planning Commission was contemplating to raise the economic growth target to 9 per cent during the five year period, up from 8.2 per cent likely in the current Plan.

The Planning Commission is slated to finalise the draft Approach Paper to the 12th Five Year (2012-2017) plan during the month and send it to Union Cabinet for vetting.

Asked about the government's preparedness to deal with the spill-over of the US rating downgrade into the economy, Kumar said: "The situation is being watched. The finance ministry is in constant touch with the RBI and Sebi and they are prepared to deal with the situation as it emerges. There is no reason to panic".

Kumar said that despite problems in the US and the Euro zone, India's economic fundamentals remain strong.

He cited three factors -- a high savings and investments ratio, demographic dividend with India having the world's largest population of youngsters and the massive USD 1 trillion infrastructure development programme during the 12th Plan -- and said they will ensure that the country's growth rate remain strong.

"There may be a little pressure on exports but India's real growth story is driven by internal demand and consumption and this will compensate for any decline in exports," he said.

The minister added that the fall in commodity prices as a result of the US rating downgrade could help India's fiscal deficit target.

"A very important factor of the situation in the global economy is the sharp decline in the oil and commodity prices, which will ease the pressure of our import bill, thereby enabling us to reduce the country's fiscal deficit to about 4.6 per cent this year," he said.