India factory output growth slows sharply

India's industrial production growth slowed sharply in December, to its slowest pace in two months, mounting more pressure on the Reserve Bank of India (RBI) to cut key lending rates to bolster growth in Asia's third largest economy.

Output from the counrey's factories, mines and utilities increased a lower-than-expected 1.8 percent in the month from a year earlier, government data showed on Friday, a sharp dip from a 5.95 percent rise in November.

Analysts said that amid a widening fiscal deficit worries for the government, the onus was on the central bank to cut interest rates to hike growth in an economy that is set to grow at it is slowest pace in three years.

The lower-than-expected December data comes following the government's announcement last weak that India's economy is estimated to grow this financial year at 6.9 percent, as a bout of monetary tightening takes its toll on investment amid weak global conditions.

Growth estimates for Asia´s third-largest economy in the current fiscal year to end-March have been cut several times from an earlier estimate of about 9 percent and the latest climb down beat forecasts of 7 to 7.5 percent growth for the full year.

A burgeoning fiscal deficit, a policy logjam in the government battling several corruption scandals and whims of allies and an aggressive central bank determined to curb inflation by hiking lending rates also compounded the drop in growth, analysts said.

Economists say the RBI's hawkish stance of monetary tightening since March 2010 has progressively reduced investment and has risked squeezing growth to levels last seen during the 2008-09 financial crisis.

In its media release, the federal statistics office on Friday also said that the cumulative growth for the period April-December 2011-12 stands at 3.6 percent over the corresponding period of the previous year.

The indices of industrial production for the mining, manufacturing and electricity sectors for the month of December 2011 stand at 136.2, 190.7 and 149.8 respectively, with the corresponding growth rates of (-) 3.7 percent, 1.8 percent and 9.1 percent as compared to December 2010.