India's economic growth will start falling sharply from the fourth quarter of 2008 mainly due to a drop in investments, demand and exports, Nomura Financial Advisory & Securities (Pte) said in a note.

Potential fallout from last week's terror attacks in Mumbai is an added "downside risk," the Japanese financial group added.

Nomura also cut its estimate for India's gross domestic product growth in 2008/09 to 6.8 per cent from 7.2 per cent, and expects 2009/10 GDP growth to slow to 5.3 per cent from its earlier estimate of 6.9 per cent, according to the note.

"There are increasing signs of non-linear economic effects: vicious negative spirals from falling asset prices, sagging confidence, rising job losses, tightening lending standards and weakening demand, as well as increasing multiplier effects on domestic demand from the slump in exports," Nomura said.

"We forecast inflation to ease sharply due to falling commodity prices and rising economic slack, and consequently expect the RBI to embark on an aggressive rate-cutting cycle," Sonal Varma, economist, said in the note.

India's GDP grew by 7.6 per cent in the third quarter of 2008 down from 7.9 per cent in the previous quarter, led by still-strong growth in the services sector, but details confirm that the economy is losing momentum, the bank said.