Indian industrial output growth nearly doubled to 13.8 percent in July, dispelling fears about a demand dip and enthusing policy planners to hope for a more than 8.5 percent economic expansion.

Fears about falling demand had set in after an official bungling in the calculation of first quarter GDP numbers.

However, the Index of Industrial Production (IIP) data for July – released today – showed that output of capital goods, used by the manufacturing industry, soared 63 percent from 1.7 percent a year ago.

Also, manufacturing sector output grew 15 percent in July against 7.4 percent a year ago, setting at rest doubts raised by analysts if the economic expansion was real.

Industrial growth in July last year was 7.2 percent.

Official data released last month put economic growth in the April-June quarter, based on actual expansion without accounting for taxes, at 8.8 percent.

But GDP growth at market price, which reflects the value of the production or services that includes indirect taxes, was just 3.65 percent.

Usually, the difference between the growth rate of GDP from the two methodologies is between two and 3 percent.

With the numbers creating confusion, the government quickly set the anomaly right by revising the GDP figure at market prices to 10.02 percent from 3.65 percent earlier.

Given the stellar numbers of industrial production for July, the Planning Commission believes the economy could beat the government’s overall growth projection of 8.5 percent for this fiscal.

Finance Minister Pranab Mukherjee said he expects average industrial growth this fiscal to be between 12 and 13 percent, given the good showing of the labour-intensive manufacturing sector.

Consumer durable goods production was also up 22.1 percent, the same as in July 2009.

But electricity generation grew at a slower 3.7 percent against 4.2 percent a year ago.

Most analysts had predicted factory output to fall to single digit in July as a result of what they perceived to be waning demand.

“These July figures, I would say, are better than what I had expected. On the whole, taking together April-July, it thus suggests that we are on track at least to achieve the growth rate target… In fact, there may be a good case to marginally increase it (GDP target),” Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters in New Delhi.

“This is almost double the market expectations,” Crisil chief economist D K Joshi said.

However, experts are not as enthused, saying that the July figures may not sustain and could prove to be a blip.