NEW DELHI, Feb 7: India sharply raised its full-year growth forecast to 9.2 per cent on Wednesday, from an estimate of above eight per cent at the start of the year, on a surge in demand for services and manufactured goods.

The government's latest advance estimate for the year ending March 2007, the fastest rate in nearly two decades, comes after the central bank last month raised its full-year forecast to 8.5-9 per cent, from above eight per cent.

“The growth is driven by a combination of the investment demand and consumption demand,” said Saumitra Choudhuri, chief economist with ICRA, a credit rating agency.

“So there is capacity creation which makes the growth robust. Growth may drop marginally (in the future) but not to the levels of six or seven per cent seen earlier,” he said.

Following the data, the chief economic adviser to the finance ministry said there was concern about the pace of growth and its impact on prices.

“It is not overheating yet, but it can overheat if the economy is not managed well and we will take steps to avoid such a situation,” said Ashok Lahiri.

India's economy grew 9.1 per cent in the first half of the current fiscal year to September and the country is second only to China, at 10.7 per cent in 2006, in growth rates among major world economies.

The 30-share Mumbai stock exchange Sensex rose 164.94 points or 1.14 per cent to a record close of 14,643.13 on Wednesday following the news, beating the previous high of 14,515.9 set only on Monday.

India's Central Statistical Office makes regular revisions to leading economic indicators and forecasts such as inflation, growth and trade as changes in the fast-growing economy lead to updated data.

However, the changes lag private forecasts by economists from banks and think-tanks, many of which upgraded economic growth estimates last year.

Last week, the Central Statistical Office revised its estimate for the year to March 2006 from 8.4 per cent to a much faster 9 per cent, with the figures changing sharply as the true strength of the economy was measured.

Indian Prime Minister Manmohan Singh has set a 10 per cent growth target but in December admitted that an ailing rural economy and inadequate public services hurt efforts towards achieving that goal.Rising inflation, too, has been a source of worry for the government.

Last week, Singh said combating inflation -- which inched close to a two-year-high of 6.11 per cent mid-January -- was a priority for his government.

India's central bank has said it is comfortable with annual inflation between 5 and 5.5 per cent, and has been using a variety of tools such as interest rate hikes and higher bank cash reserves to fight rising prices since it began a tightening cycle in late 2004.

The government has cut customs duties on cooking oil, cement and other products in a bid to lower prices for such basics, but analysts expect such efforts will take time to work.—AFP