New Delhi, Feb. 12: Industry growth soared to 16.8 per cent in December — the highest in 15 years — powered by capital goods and durables, which grew 38.8 per cent and 46 per cent, respectively.

The strong show gives the government a greater leeway to roll back fiscal stimulus in the budget.

“It (the IIP growth) is quite encouraging and I do hope that the third-quarter GDP figures will also be encouraging. It will get reflected in the overall GDP,” finance minister Pranab Mukherjee said.

The growth rate in the index of industrial production (IIP) stood at 11.8 per cent in November. The December growth is the highest since April 1995.

The index had contracted 0.3 per cent in the same month a year ago, and this made the recovery look more impressive.

Manufacturing, which constitutes around 80 per cent of IIP, led the growth in factory output, rising 18.5 per cent against a slide of 0.6 per cent a year earlier.

“We had thought industrial growth may be 13 per cent. But it is now just under 17 percent. So the performance is very much in the direction that we expected of a good revival. But I don’t expect 17 percent growth to continue month after month, that’s for sure,” Planning Commission deputy chairman Montek Singh Ahluwalia said.

Consumer durables surged 46 per cent against a 4.2 per cent fall in December 2008; capital goods grew 38.8 per cent, indicating that industry would sustain a high growth rate in the future.

However, the pace of growth in factory output may slow down if the government decides to withdraw the stimulus measures to trim its fiscal deficit.

In the last budget, the government had expressed its intention to reduce the fiscal deficit in 2010-11 to 5.5 per cent of the gross domestic product from a projected 6.8 per cent for this fiscal. “The economy doesn’t need the crutches anymore. Controlling inflation and the fiscal deficit will be the challenge now,” Crisil economist D. K. Joshi said.

Food inflation rose for the third straight week to touch 17.94 per cent in January-end, and overall inflation rose to 7.31 per cent in December from 4.78 per cent in the preceding month.

“It (the withdrawal) will be calibrated and done in a manner that the stimulus continues to persist and at the same time some adjustment is made as far as the deficit is concerned,” C. Rangarajan, chairman of the Prime Minister’s economic advisory council, has said. Earlier this week, the Central Statistical Organisation had forecast a 7.2 per cent growth rate for this fiscal.

Industry chamber Ficci secretary-general Amit Mitra said, “Some important sectors like food products, cotton textiles, leather and miscellaneous manufacturing industries are lagging behind other sectors in terms of growth.”

He said the current growth seemed 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.”