Page last updated at 12:00 GMT, Monday, 8 February 2010

Indian economy 'to grow 7.2%' as manufacturing expands

An Indian worker unloads vegetables
India's economy grew strongly in the three months to the end of September

India has said its economy is set to grow by 7.2% in the year to the end of March, raising the chance that state support could soon be withdrawn.

Government stimulus measures helped to maintain strong growth during the global downturn, but attention is now turning towards cooling rising prices.

Some now expect the government to raise interest rates earlier than expected.

Strong growth in manufacturing in India is helping to compensate for falling agricultural output.

"These numbers mean that the government will have to consider exiting from the fiscal stimulus in the budget," said Rajiv Kumar at Delhi-based think-tank ICRIER.

"Even if they don't do that fully, I expect them to at least announce a roadmap for exit."

Rising prices

India's economy is recovering faster than expected - it grew at an annual pace of 7.9% in the three months to the end of September 2009, after growing 6.7% in the year to the end of March 2009.

Instead of concerning themselves with securing strong growth, policymakers are now starting to turn their attention to inflation.

Last month, India's central bank increased cash reserve requirements for lenders in a bid to contain rising prices.

It also lifted its inflation forecast for the end of the financial year in March to 8.5%.

The Reserve Bank has pumped more than $125bn into the Indian economy since September 2008.

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