Nov. 29 (Bloomberg) -- India's economy probably grew last quarter at the slowest pace this year after the central bank raised interest rates to a five-year high to curb inflation.

Asia's third-largest economy expanded 8.7 percent in the three months to Sept. 30 from a year earlier, less than the 9.3 percent gain in the previous quarter, according to the median forecast of 19 analysts in a Bloomberg News survey. The figures are due tomorrow around noon in New Delhi.

The central bank may be near the end of its round of rate increases as inflation is within its target range. India is still the second-fastest expanding major economy after China and is attracting investment from Coca-Cola Co., Motorola Inc. and Metro AG, which are among 100 or so companies attending a business conference in New Delhi this weekend.

``India's growth is mainly dragged down by manufacturing, constrained by past interest rates rises,'' said Sonal Varma, an economist at Lehman Brothers Securities Ltd. in Mumbai. ``The pace is still fairly fast, and the biggest attraction about India is that it's among the least vulnerable in Asia to a global economic slowdown.''

With exports accounting for only 23 percent of India's $906 billion economy, Lehman expects the South Asian nation to be relatively immune to a deceleration in world growth sparked by mortgage defaults in the U.S.

India's economy has averaged 8.6 percent growth in the past four years. Lehman forecasts an expansion of 9 percent in 2008.

Credit Crunch

The International Monetary Fund last month cut its projection for global growth next year to 4.8 percent from an estimate of 5.2 percent in July and warned that even its new prediction may be too optimistic given threats posed by the sell-off in credit markets.

``The optimistic thing about India is that a lot of growth is attributable to domestic consumption,'' said Howard Davies, director of the London School of Economics and a former chairman of the U.K. Financial Services Authority. ``There is an internal growth dynamic, which I sense is stronger than ever before.''

India's economy has quadrupled in size since 1991, when the government introduced free-market measures that cut red tape and allowed foreign companies to set up operations locally. That's helped double per capita income in the last eight years.

Muhtar Kent, president of Coca-Cola, Thomas M. Hubner, chief executive of Metro Cash & Carry International, an arm of Germany's largest retailer, and Edward J. Zander, chief executive of Motorola, are among those attending the World Economic Forum's summit in New Delhi at the weekend.

New Jobs

European Commission President Jose Manuel Barroso and Portuguese Prime Minister Jose Socrates are also in New Delhi to seek more access for European goods and services. They are scheduled to hold talks with Indian Prime Minister Manmohan Singh as part of the eighth round of EU-India summit.

Demand in India is being bolstered by new jobs created by companies such as Cisco Systems Inc. and Mahindra & Mahindra Ltd., which are expanding to benefit from local consumers.

Cisco, the world's largest maker of computer-networking equipment, plans to triple its workforce in India to 10,000 people by 2010, Chief Executive Officer John Chambers said last month. Cisco, International Business Machines Corp. and others are recruiting more in India where pay scales are a fifth of those in western economies.

Mahindra, India's biggest sport-utility vehicle maker, plans to spend about $1 billion in the next four years to double automobile production.

Aluminum, Copper

Global producers of steel, aluminum, cement, copper and other products are benefiting from an unprecedented drive by India to modernize and expand roads, ports and other infrastructure. Singh's government aims to attract $500 billion by 2012 in India's infrastructure.

The rising trend in global minerals demand ``is driven by fundamental demographics and economic shifts, especially in developing countries like China and India,'' said Tom Albanese, chief executive officer of Rio Tinto Group, the world's third- largest mining company.

Still, growth in the immediate term will slow because of higher interest rates and a strong currency, according to Shashanka Bhide, chief economist at the National Council of Applied Economic Research in New Delhi.

Foreign Investors

The Reserve Bank, which has raised its benchmark interest rate nine times since October 2004, last month reiterated that India's growth will moderate to 8.5 percent this fiscal year. High crude oil prices and inflows of foreign capital continue to pose a threat to inflation, currently near a five-year low of about 3 percent.

Prime Minister Singh's government, facing state and national elections, hasn't increased fuel prices this year, when oil prices rose about 50 percent.

Global investors have bought $17.64 billion of stocks and bonds so far this year, higher than the previous record of $9.46 billion in 2005, flooding banks with cash that could stoke excess demand and drive up prices.

Dollar flows have strengthened the currency by 11.2 percent this year and hurt merchandise exports, which make up half of India's manufacturing. Overseas sales in the six months ended Sept. 30 rose 18.5 percent, almost half the pace in the same period the year earlier.

``The situation is less likely to reverse soon,'' said National Council's Bhide, who expects growth to slow to 8.9 percent in the year ending March 31.

India's GDP Forecasts

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                                 GDP YoY%
Company                         July-Sept.
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Median                             8.7%
Average                            8.7%
High                               9.2%
Low                                8.1%
Number of Estimates                 19
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ABN Amro Bank                      9.0%
Anand Rathi Securities             8.7%
Citi                               8.9%
CRISIL Ltd.                        8.7%
DBS Group                          8.6%
Deutsche Bank                      8.6%
Dun & Bradstreet Info.             8.7%
Edelweiss Securities               8.3%
Forecast Singapore                 8.5%
HSBC                               8.9%
ICICI Securities                   8.1%
IDBI Gilts Ltd.                    8.8%
ING Vysya Bank                     9.2%
Inst. of Economic Growth           8.8%
JPMorgan Chase Bank                8.7%
Lehman Brothers                    8.8%
Standard Chartered Bank            8.3%
Thomson IFR                        9.2%
Yes Bank                           8.8%
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To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net

Last Updated: November 28, 2007 22:16 EST