Driven largely by services and manufacturing, the economy is expected to grow 9.2 per cent 2006-07 — India's highest since the government introduced economic reforms.

The Cebtral Statistical Organisation (CSO), in its official growth estimate for 2006-07 said manufacturing output growth was estimated at 11.3 per cent compared with 9.1 per cent a year ago.

CSO's economic growth estimate is higher than the Reserve Bank of India's forecast of between 8.5-9.0 per cent. Last week the growth rate was revised to 9.0 per cent from the previous target of of 8.4 per cent.

Growth has averaged 8.3 per cent over the past three fiscal years, straining infrastructure and leading to a squeeze on capacity, which is fuelling inflation.

The current growth is backed by strong investments, exports, and consumption. In fact consumption growth has led to a credit growth of 30 per cent, which in turn has resulted in inflationary pressures, and to cool it the RBI has been tightening liquidity.

There are fears that the tightening the liquidity could also curb new investment, moderating growth in FY 2007-08. The RBI raised its key lending rate last week to 7.50 percent, a four-year high, following four increases in 2006 to cool inflation.

Prime minister Dr Manmohan Singh has said farm output must grow close to 4 per cent on a sustained basis to ensure GDP increases by 7.0-8.0 per cent annually over the next few years.