IIP up 11.1% in December

Bettering expectations, the index of industrial production (IIP) surged 11.1 per cent in December, adding pressure on the central bank to raise interest rates..

The increase in production at factories, utilities and mines reported by the Central Statistical Organisation today followed a revised 15.4 per cent gain in November. Economists were expecting a rise of 10.5 per cent.

Companies including General Motors and Reliance Industries Ltd are producing more cars and oil products in Asia's fourth-largest economy, as record bank lending and higher salaries spur consumer spending.

Rising demand has pushed inflation to a two-year high and may prompt the Reserve Bank of India to increase its key overnight lending rate in April for the sixth time in 16 months.

"The data clearly shows the strength of demand in the economy," said Harish Menon, an economist at ING Vysya Bank Ltd in Mumbai and the only one among 13 analysts who correctly forecast the December output gain.

"The central bank will try and contain demand factors to curb inflation," he added.

Menon expects the central bank to raise its overnight lending rate by a quarter-point in the next monetary policy statement, due on April 24.