Image caption Annual inflation in April stood at 9.59% after reaching 9.9% in March

India's economy grew at an annual rate of 8.6% in the three months to March, largely thanks to growth in manufacturing, official data has shown.

That marked an increase on the 6.5% growth seen in the previous quarter.

Analysts say the figures from the Central Statistical Organisation are likely to keep the central bank on its path of gradual rate increases.

The Reserve Bank of India (RBI) raised interest rates in April and March as it battles high levels of inflation.

The economy for the year ending March 2010 grew by 7.4%, ahead of the RBI's January forecast of 7.2%.

'Momentum'

"I expect the current economic momentum to remain," Indian Finance Minister Pranab Mukherjee said after the figures were released.

He added that he expected the economy to grow by 8.5% in the financial year to March 2011.

However, some analysts cautioned that going forward, the Indian economy could be impacted by the continuing government debt woes in Western Europe.

"If Europe's problems continue, it may cause a domino effect across the globe, weakening trade and consumer confidence again," said Mridul Saggar, chief economist at Mumbai-based Kotak Securities.