Proving all expectations too conservative, the economy clocked a robust 7.9 percent growth in the second quarter, catapulted by a stimulus packages-powered strong industrial growth.
The growth is not only higher than a mere 6.1 percent in Q1, but also more than 7.7 percent recorded in July-September 2008, when the economy did not come under the full impact of the then deepening global financial crisis.
Besides the industry, the services sector is on an upswing with community, social and personal services expanding by 12.7 percent during the reporting quarter and the farm sector logging in a growth of 0.9 percent against a contraction that was projected due to the weak monsoon.
The significance of the numbers could be gauged from the fact that the government as well as the Plan panel expected slower growth in the second quarter than the first quarter and most economists pegged it in the range of 6.1-6.6 percent.
The stock markets gave rousing welcome to the data with the benchmark Sensex rising nearly 340 points during the day.
For the first half, the economy grew by seven percent against 7.8 percent a year ago, prompting Finance Minister Pranab Mukherjee to expect over 7 percent growth this fiscal.
For the current fiscal, Prime Minister Manmohan Singh expected the economy to grow by 6.5 percent, RBI by 6 percent and the Planning Commission by 6.3 percent.
"...this performance does suggest that there may well have to be an upward revision in GDP growth of 6.5 per cent, which has been projected so far," Plan panel Deputy Chairman Montek Singh Ahluwalia said.
The Reserve Bank deputy Governor Subir Gokarn said, "Clearly this is better news than we could have expected and we will have to review the forecast for the year as a whole."
The Prime Ministers' Economic Council chairman C Rangarajan also said that the target of 6.5 percent GDP growth for the current fiscal may have to be revised upwards following the robust second quarter numbers."
With this, the domestic economy continues to be the second fastest growing large economy in the world after China, which recorded 8.9 percent in the July-September of 2009.
As hopes of revival accentuates after the data, economists expect that the government may now think of withdrawing the fiscal stimulus.
"The government could withdraw stimulus (excise duty cuts) for fast-growing sectors as the Centre's revenue position does not look too good," Crisil principal economist DK Joshi said.
Manufacturing, which drew benefits of the stimulus package, expanded by a smart 9.2 percent against 3.4 percent in the preceding quarter and 5.1 percent in the second quarter of the last fiscal.
However, Ahluwalia said,"my views have always been that we should look at the position (stimulus) at close to February."
From last December through March 2009, the Centre had cut excise duty by six percent and service tax by two percent, besides stepping up plan expenditure to generate demand, which slowed down after the US financial icon Lehman Brothers collapsed last year, dragging the whole world into the worst recession after the Great Depression of the 1930s.
Positive growth by the farm sector also surprised economists. "We are surprised with agriculture growth. If not a downslide, we expected a decline at least," HDFC chief economist Abheek Barua said.
However, some economists still maintain their under-seven percent forecast for FY10. "We yet maintain our 6.5 per cent GDP forecast," Yes Bank chief economist Shubhada Rao said.
With growth on the upswing, the moot question now is will the government and RBI now shift their focus on controlling inflation. Food inflation has already crossed 15 percent during the second week of November.
While Ahluwalia said traditional monetary tools of the RBI may not be effective in curbing food inflation, Rangarajan believes that RBI may now focus more on reining inflation.
Both Joshi said, "There is a strong possibility of interest rate hike by the RBI in January." Barua also said a case for a rate hike remains.
"With respect to monetary policy action, clearly this strong GDP number gives a green signal for some tightening and we maintain our earlier call of a CRR hike by 50 bps by December-January."
Construction, which has a cascading effect on economy, grew less this quarter at 6.5 per cent against 7.1 per cent Q1 and 9.6 per cent in Q2 last fiscal.
But financial, business services and realty rose by 7.7 per cent against 8.1 per cent in Q1 and 6.4 per cent in Q2 FY09.
Trade hotels, transport and communication, grew higher at 8.5 per cent than 8.1 per cent in Q1, but lower than 12.1 per cent in Q2 FY09.
However, electricity, gas and water supply at 7.4 per cent and mining and quarrying at 9.5per cent grew more than first Q1 of FY10 and Q2 of FY09.
Economy may grow at 7 pc-plus this fiscal: Pranab
Happy with the high growth in the second quarter, Finance Minister Pranab Mukherjee has expressed confidence that the economy would grow by over 7 pc this financial year.
"Taken together the two quarters, I do hope it will be possible for us to achieve 7 per cent plus (growth rate), but still it is too early to predict. I will wait for the third quarter figures," Mukherjee told the reporters in New Delhi on Monday.
He was commenting on the official growth figures for the second quarter (July-September 2009-10) which showed the Indian economy recording a growth rate of 7.9 percent, much more than what was anticipated by any analyst or think tank.
"I am quite happy that the second quarter GDP growth has been registered at 7.9 per cent. In fact it is more than that of the first two quarters of the previous year, which were at 7.8 per cent and 7.7 per cent," he said.
Pointing out that the stimulus given to the industry to combat the impact of the global meltdown were paying dividends, Mukherjee said, "the corporate sector is responding, industrial growth is taking place and negative growth of export has come down in October."
The government had provided three stimulus packages to the industry to fight the impact of global downturn, which pulled down the GDP growth rate to 6.7 percent in 2008-09 from 9 percent a year ago.