The most recent economic data releases suggest that economic activity has gathered further momentum in October-December. The purchasing managers' index (PMI) compiled by a UK-based bank, HSBC, has reached its highest level since May 2010, rising from 57.2 points in October to 58.4 in November. The survey, which covers 500 companies, also showed a further rise in input prices and a pick-up in orders from overseas.

Meanwhile, activity in the services sector surged to a four-month high in November, according to HSBC's Services PMI. The Business Activity Index rose to 60.1 in November, from 56.2 in October, driven by new orders. On the consumer side, there are few indications that the steady tightening of monetary policy that has been implemented since the start of 2010 has curtailed spending (although interest rate rises tend to take effect with a significant lag, meaning that the impact of monetary tightening is likely to become evident only in coming months). Domestic car sales, for example, jumped by 21% year on year to 161,497 units in November, according to the Society of Indian Automobile Manufacturers. Sales of commercial vehicles, which can be taken as a proxy indicator of investment activity, meanwhile jumped by 18% year on year, to 48,314 units.