NEW DELHI, 13 September 2007 — India’s industrial growth sharply slowed to 7.1 percent in July from 13.2 percent in the same month a year ago, the government said yesterday, suggesting repeated increases in lending rates were affecting the broader economy.

The deceleration cut across almost all sectors.

Manufacturing output in July grew 7.2 percent from a year ago, down from 14.3 percent expansion seen in the same month a year earlier, the Commerce and Industry Ministry said in a statement.

Electricity generation rose 7.5 percent in July compared to 8.9 percent a year ago. Mining output expanded 4.9 percent, down from 5.1 percent in the same month last year. Government officials insist that the broader economy would still grow at a robust pace.

“I am sure ... the overall growth rate of the economy in this (financial) year will still be about 9 percent,” C. Rangarajan, who heads the prime minister’s Economic Advisory Council, told reporters.

The government statement didn’t give reasons for the slowdown, but analysts expected industrial growth to slow this year because of the central bank’s tight money measures and higher lending rates. Growth is also being hit by a stronger rupee because of which exports are growing slower than last year.

Analysts polled by Dow Jones Newswires predicted industrial output to grow 9.5 percent in July.

The news dampened sentiment on the stock market. The 30-share benchmark index of the Bombay Stock Exchange — the Sensex — lost gains in early trade to close at 15,505 points, down 0.2 percent from Tuesday.

Some economists, however, feel that the numbers for July were an aberration and may have missed out on some areas of growth that could be included in data for following months.

“The sharpness of the slowdown over the last couple of months looks a little erratic to us and we wouldn’t be surprised to see production bounce back in the near term,” Robert Prior-Wandesforde, an HSBC economist based in Singapore, said in a client note.

Industrial activities were also hit in July by severe monsoon floodings in some parts of country.

The latest numbers pulled down the average industrial growth in the April-July period, the first four months of the current fiscal year, to 9.6 percent from 11.1 percent in the same period a year ago.

India’s industrial output rose 11.3 percent through the full fiscal year ended March 2007, the strongest in 11 years. That helped the broader economy grow 9.4 percent last year, its strongest in 18 years. The rapid expansion, driven by rising middle class incomes and a surge in exports, also fueled inflation and stoked fears that the economy might be overheating. Monetary authorities have since brought a series of measures, including increase in lending rates, to cool the economy. Prior-Wandesforde said the impact of the tight money measures will take time to be visible.

“The worry for Indian growth is that most of the negative effects on growth from the policy tightening is unlikely to be felt until 2008,” he said.

Meanwhile, State Bank of India, the country’s biggest bank, plans to raise at least Rs.100 billion ($2.5 billion) in a share sale before the end of the year, Chairman O.P. Bhatt said yesterday.

The listed government-run bank had not decided the size or exact timing of the equity sale, or whether shares would be offered in the domestic or foreign markets, he said.

“That we are still finalizing,” he told reporters at a banking conference.

Separately, banking sources told Reuters that SBI had raised Rs.35 billion ($865 million) through an issue of Upper Tier II bonds, more than double the 15 billion rupees it was looking to raise, sources familiar with the deal told Reuters.