India's economy expanded by an unexpectedly strong 7.6 per cent in the three months to September despite the global slowdown, official data showed.

Analysts had forecast Asia's third-largest economy would grow by around 7.3pc in the second quarter of the financial year to March next year.

But second-quarter growth was below the 7.9pc logged in the previous quarter and down from 9.3pc in the same period a year earlier as demand was hit by higher borrowing costs and the financial turmoil.

'The best part of the year is already over,' Crisil analyst D K Joshi said.

The slowdown was apparent across the board with manufacturing expanding by 5pc, down from a blistering 9.2pc in the year-ago period. It had grown by 5.6pc in the first quarter of the current fiscal year to March.

'While the growth outcome for the latest quarter was better than market expectations, it still confirms the ongoing deceleration in growth,' said Macquarie Securities' Rajeev Malik.

Agricultural output grew by just 2.7pc in the second quarter compared with 4.7pc a year earlier. Electricity and related sectors expanded by 3.6pc, down from 6.9pc in the previous financial year.

'Although the data is stronger than expected, it does not capture the slowdown which has kicked into the second half of the year,' said Goldman Sachs analyst Tushar Poddar.

Government policymakers said the economy will grow by around 7pc this year. The second-quarter data is 'better than expected, but in the second half there will be definitely a slowdown in manufacturing and services. I expect overall GDP figure to be at sevenpc this fiscal year,' said Govinda Rao, an economic adviser to the prime minister.

Private economists project expansion as low as 6.7pc and 5.5pc next year.

The data came a day after India's inflation fell to a six-month low of 8.84pc, providing more room to the central bank to cut interest rates to spur flagging economic growth, analysts said.

The central bank 'now has enough room for a rate cut' to boost the economy, said Joshi.

Inflation, which was nudging 13pc in August, has been falling as global commodity prices collapse and consumer demand drops amid a reduction in lending caused by the global financial crisis.

Analysts expect inflation, now at its lowest since mid-May, to reach about fivepc or lower by the end of the fiscal year in March, well within the central bank's target of sevenpc.

After aggressively raising rates to fight inflation, the central bank recently changed tack and earlier this month cut its benchmark lending rate for the second time in two weeks to stimulate the economy.