The Index of Industrial Production (IIP), which measures industrial growth, had contracted by 0.2 per cent in the same month a year ago and hence made the industrial recovery look comparatively higher.
The growth in the factory output was mainly led by the manufacturing sector, which constitutes around 80 per cent of IIP, as it rose by 18.5 per cent against 0.6 per cent slide a year earlier.
Within manufacturing, the consumer durables industry like auto, refrigerators, etc surged 46 per cent against 4.2 per cent fall in December 2008. Capital goods output also rose by 38.8 per cent, clearly showing that industry would sustain high growth rate in future as well.
This has raised the expectations of the government that is now talking of better economic growth numbers than 7.2 projected by the Central Statistical Organisation earlier this week.
"It (IIP growth rate in December) is quite encouraging and I do hope that third quarter GDP figures will also be encouraging. It will get reflected in the overall GDP," Finance Minister Pranab Mukherjee reporters in New Delhi.
However, the strong IIP numbers have sharply divided analysts and chambers whether stimulus provided to spur the industry facing the brunt of global financial crisis should now go.
HDFC Bank economist Jyotinder Kaur said, "I would expect some kind of withdrawal of tax cuts in the Budget."
The finance minister is slated to unveil the Budget 2010-11 on February 26.
However, industry chamber Ficci secretary general Amit Mitra sounded a word of caution, he said "some important sectors like food products, cotton textiles, leather and miscellaneous manufacturing industries are lagging behind other sectors in terms of growth."
In fact, processed food industrial production declined by 6.9 per cent.
He said the current growth seems to be driven by a few large sectors. "Also, we need to be cautious because this strong (manufacturing) growth has come over the negative growth of 0.6 per cent in December 2008," Mitra added.
In fact, chief statistician Pronab Sen had also pointed to the lacunae in depending only on IIP data for stimulus withdrawal, since it gives only the production figures and does not indicate whether the country has demand to take that supply or only inventories would pile up.
Within manufacturing, intermediate goods also rose by 21.7 per cent against 8.9 per cent decline a year ago. Besides manufacturing, mining output grew by 9.5 per cent in December against just 2.2 per cent a year ago, while electricity generation rose by 5.4 per cent compared to 1.6 per cent.
For the first nine months industry grew by 8.6 per cent against 3.6 per cent a year ago.
Buoyed by IIP numbers, Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the economic growth this fiscal may be higher than 7.2 per cent projected by the CSO. He also hoped that the economy would grow by over 8 per cent in FY'11.
Industrial growth in December was much better than expected as analysts were forecasting it to be in the range of 12-13 per cent.
"We thought it (industrial growth in December) might be 13 per cent. It is just under 17 per cent. So performance is very much in the direction that we expected of good revival," Ahluwalia said.
The industrial revival could also be gauged from the fact that it grew by 13.07 per cent in the third quarter against 9.2 per cent in the second quarter and 3.8 per cent in the first quarter.
With agriculture output likely to contract in the third quarter, better-than-expected IIP numbers would make up for the fall in farm production, and may sustain high GDP numbers.
After contracting for a few months after September 2008, industry has recovered with the help of the stimulus doses given by the government.