Under attack for its failure to tackle rising prices, the government had something to cheer about on Monday.
According to data released on Monday, the six core industries grew by 6.6 per cent in December, from just 3 per cent in the previous month, signifying that industrial growth was likely to pick up in the last month of 2010, against an 18-month low of 2.7 per cent in the previous month.
As the six core industries - crude oil, petroleum refinery, steel, cement, coal and electricity - constitute around a fourth of index of industrial production (IIP) data, their performance bodes well for December's overall output figures, which in turn would have a beneficial impact on GDP.
However, economists counsel caution, as core and industrial sector data are quite volatile and the high base effect of last year may temper too robust a rebound.
"Growth has been good and the core sector has picked up during the month. It will have a positive impact on IIP for the month. However, the broad trend of moderation in IIP will continue due to the very high base effect of the previous year," YES Bank Chief Economist Shubhada Rao said.
Nevertheless, markets reacted positively to the data. The Bombay Stock Exchange (BSE) Sensex recouped most of its losses on Monday following the release of core sector growth figures and better-than-expected results from ONGC.
The 30-stock index closed at 18,327.76, down 0.37 per cent, or 68.21 points. The Sensex recovered nearly 290 points from the intra-day low of 18,038.48.
It shed 0.4 per cent on Monday, leading to a 10.6 per cent fall in the month, its steepest since October 2008.
"The market was already oversold. December's core sector growth data and better-than-expected numbers from ONGC helped the recovery," said Alex Mathew, head of research at Geojit BNP Paribas Financial Services.
December's 6.6 per cent core sector growth compares with 3 per cent in November and 6.2 per cent in December of the previous year.
At the same time, the revised GDP numbers show the economy grew by 8 per cent in 2009-10, against 7.4 per cent estimated earlier.
The advance estimates for this fiscal will be released sometime next month to provide data for the Budget calculations.
However, part of the revision is statistical in nature, since it is attributable to a revision in the wholesale price index series, while the other part is due to an update on industrial growth numbers for 2009-10.
"The increase is certainly because of the base revision in WPI, as it is used as a deflator and there is clear deflator impact in the numbers," Rao said.
GDP was revised upwards despite manufacturing, mining and electricity - all the components of the industrial sector - reporting lower growth in the new numbers.
Manufacturing grew by 8.8 per cent in 2009-10 against the earlier estimate of 10.8 per cent, mining at 6.9 per cent against 10.6 per cent and electricity by 6.4 per cent against 6.5 per cent.
Besides, the government seems to be on the track to meet its fiscal deficit target of 5.5 per cent of GDP this fiscal, as it was able to contain the deficit at Rs 1.71 lakh crore, which is just 44.9 per cent of Budget projections at Rs 3.81 lakh crore this financial year.
The fiscal deficit was pruned thanks to higher revenues from the sale of spectrum for 3G and broadband services, as well as better tax revenues.
But the deficit may not be contained much below the target, since expenditure is expected to rise in this quarter.
Among six core industries, cement and electricity did not perform well. While cement production fell 2.2 per cent against a whopping 11 per cent growth last year, electricity generation grew by a slower pace of 4.3 per cent against 6.6 per cent.
Coal production expanded by 3 per cent in December, compared with 1.3 per cent. "The decline in cement production might also be because of rain in November and December, but there seems to be a healthy demand and it will pick up," Crisil Chief Economist D K Joshi said.
Along with GDP, per capita income was also revised to Rs 46,492 in 2009-10, a growth of 14.5 per cent over last year, against an earlier estimate of Rs 44,345.
The revision in GDP numbers may have an impact on the Planning Commission's downward revision of annual growth numbers during the Plan period, if high base effect does not disturb the growth targets for this financial year.
The Plan panel has revised downward its target of 9 per cent per annum growth in 2007-12 to 8.1 per cent.
