"Lot of other countries are still flirting with deflation. On the other hand, we are having a surge in inflation," said India's central bank Gov. Duvvuri Subbarao.

"For the Reserve Bank, the challenge is to calibrate monetary policy taking into account the demands of inflation management and the demand of supportive recovery," he said.

The statement hinted that at its quarterly monetary policy review on Jan. 25, the Reserve Bank of India is most likely to raise interest rates by at least 25 basis points. The RBI raised interest rates six times last year.

Indian shares have fallen to three-month-lows below 19,000 points due to hardening expectations of further interest rate rises, which will dampen economic activity.

"When I meet other central bank governors they tell me: 'why don't you give us a bit of your inflation.' That's how desperately they want some inflation and how desperate we are to control our own inflation," Subbarao said.

He was referring to the last week's data that pointed to acceleration in India's inflation rate in December to 8.43 percent from 7.48 percent in November, driven by food prices which rose by 16.9 per cent.

However, India's Finance Ministry said on Monday that inflation is expected to come down to by the end of this fiscal year.

"It will be around 6.5 percent by March end," said Finance Secretary, Ashok Chawla.

Despite Indian government's move to raise petrol prices that is expected to fuel inflation, Chawla said: "Six months ago, we may have said inflation will be 5.5-6 percent (by March end). Since it is always a dynamic process, today nobody is saying because the trend has not really gone down."

In December also, Indian firms raised petrol prices by up to 5.6 per cent, the biggest rise in six months, to protect their margins from high crude oil prices.

"Though the inflation may not touch the 5.5 percent level, but it has started moving downward," he said.

The two statements — one by the RBI official and another by the Indian Finance Ministry secretary — contradict each other. While the former says that the Indian economy is witnessing a surge in inflation, the latter claims that the downward trend has already begin.

Recently, the government unveiled measures to check spiraling prices by deciding to continue ban on exports of edible oils, pulses and non-basmati rice and asked states to waive local taxes on essential commodities.

An index of primary articles that includes food items such as fruits and vegetables rose 3.5 percent in December, said the ministry. Manufacturing inflation quickened by 0.4 percentage point last month. Onion costs surged 70 percent in the week to Jan. 1, according to the ministry.

The World Bank recently said that economic growth in South Asia, including India, may slow as the region's governments tighten fiscal and monetary policies to fight inflation.

India, the region's largest economy, will grow 8.4 percent this year and 8.7 percent in 2012, down from 9.5 percent last year, the bank said.