India's industrial output grew by 8.2 percent year-on-year in October, the fastest rate in 16 months, official data showed on Wednesday in the first strong sign the worst may be over for the economy.
The industrial output of Asia's third-largest economy marked a sharp improvement from a revised contraction of 0.7 percent in September and far outpaced market expectations of a five percent rise.
"We think the lowest point is behind us -- we do see a mild, gradual recovery taking shape," Shubhada Rao, chief economist at India's Yes Bank, told AFP.
Manufacturing climbed 9.6 percent from a year earlier while capital goods production -- output of factory machinery and other equipment -- surged 7.5 percent, reflecting anticipated stronger future demand.
The overall 8.2 percent rise in output from factories, mines and utilities was inflated by a weak base effect from a year earlier. It got an extra boost from the religious festival season when buying is considered auspicious, economists said.
However Credit Suisse economist Robert Prior-Wandesforde said "the economy has bottomed and is beginning to strengthen" although there would be bumps on the way.
Output accelerated at its quickest pace since June 2011 and shows the economy is "on the mend", he said.
The figures represented the best economic news in months for the scandal-scarred government of Prime Minister Manmohan Singh, who is keen to revive the economy with his Congress-led administration facing elections in 2014.
The once-booming economy has been hit by continuing high interest rates in the face of stubbornly strong inflation now running at 7.45 percent, falling exports and slow investment.
Economic growth has been stuck at three-year lows with India posting expansion of 5.3 percent in the quarter to September.
Finance Minister P. Chidambaram called the output figures "encouraging" and said he would press ahead with more economic reforms, including imminent legislation to liberalise the mainly state-run banking sector.
With India striving to avert a ratings agency downgrade of its sovereign debt to junk status, Singh announced a string of reforms in September, opening up retail and other sectors to more foreign investment to drive the economy.
He has vowed more reform even though the recent blitz has cost the government its parliamentary majority with the exit of a key ally, and stirred huge opposition from lawmakers.
"It will take some time for the new structural and regulatory reforms to filter through into investment and economic growth, meaning near-term industrial and economic momentum will remain tepid," cautioned Jyoti Narasimhan, economist at research house IHS Global Insight.
Market eyes were now focused on Wholesale Price Inflation data due Friday. Economists say the figures may show inflation rose in November, which would give the central bank little headroom to ease high borrowing costs and spur the economy.
Urban consumer price inflation -- a narrower gauge of the cost of living -- climbed a fifth of a percentage point to 9.69 percent, data Wednesday showed.
The Bombay Stock Exchange benchmark 30-share Sensex index closed down 0.16 percent at 19,355.26 amid investor pessimism about an early cut in rates.
India's output rise comes as industrial output in neighbouring China has been growing faster, rising 10.1 percent in November from a year earlier.