India's industrial output growth skidded to a two-year low in September, data showed, as a string of interest rate rises took their toll on Asia's third-largest economy.

The country's 1.9 per cent industrial expansion in September undershot market forecasts of a 3.5  per cent  jump and added to a gloomy picture of an economy that is losing traction due to 13 interest rate hikes since March 2010.

"There's a clear slowdown, definitely monetary policy is biting," DK Joshi, chief economist at leading Indian credit rating agency Crisil, said.

The sluggish output figures, the weakest since September 2009, also undercut hopes that emerging markets such as India can power global growth as Europe and the US struggle.

Earlier this week, neighbouring China reported industrial output rose 13.2 per cent year-on-year in the first 10 months of 2011, slower than the 14.2 per cent growth recorded in the first nine months of the year.

India's manufacturing production rose 2.1 per cent in September, but output of capital goods such as factory equipment - a key pointer to future activity - as well as consumer goods and mines all shrank.

"We are concerned that the pace of growth in the economy has gone down," senior government economic planning adviser Montek Singh Ahluwalia said.

The weak figures buttressed expectations that India's hawkish central bank would pause in hiking rates to combat inflation even though it remains stubbornly high at nearly 10 per cent, analysts said.

The bank signalled that last month's quarter-point rate rise could be the last for 2011 and that worries about growth would assume greater prominence.

The Reserve Bank of India's anti-inflation battle has been one of the most aggressive globally, but has had little obvious impact.

Yesterday, food inflation fell nearly half a percentage point from the previous week but still stood at a hefty 11.81 per cent for the week.

Overall inflation, measured monthly, stands at 9.72 per cent with some analysts expecting a slight rise when figures are released next week.

Even with high inflation, "with the global economic scenario also deteriorating, the central bank should not only pause but begin to reverse its interest hikes," said Chandrajit Banerjee, director-general of the Confederation of Indian Industry.-Reuters