The factory output number has remained in positive territory for second month in a row mainly due to a better show by manufacturing, mining and power sectors and higher output of capital goods.
The output, as measured by the Index of Industrial Production (IIP), had contracted by 2.5 per cent in May last year.
IIP data for April remained unchanged at 3.4 per cent after revision of the provisional estimates released last month, according to the information released by the Central Statistics Office (CSO).
The IIP's previous high was recorded in October 2012 at 8.4 per cent.
"The rise in industrial production provides a glimmer of hope that the economy could be bottoming out and recovery could be on the anvil," CII Director General Chandrajit Banerjee said.
During the April-May period of the current fiscal, IIP has recorded a growth of 4 per cent, as against the contraction of 0.5 per cent in the first two months of the 2013-14 fiscal.
Manufacturing, which constitutes over 75 per cent of the index, grew 4.8 per cent in May, compared to decline in output by 3.2 per cent a year ago. For April-May, the sector has recorded 3.7 per cent growth, compared to the contraction of 0.7 per cent in the year-ago period.
Production of capital goods, a barometer of demand, grew by 4.5 per cent in May in sharp contrast to 3.7 per cent contraction in same month of last fiscal.
Overall, 16 of the 22 industry groups in manufacturing showed positive growth in May.
According to the IIP data, in April-May, the capital goods output has grown by 9.3 per cent, compared to the contraction of 2.1 per cent in the first two months of 2013-14.
The mining sector grew by 2.7 per cent in May as against a dip of 5.9 per a year ago. For April-May, the segment grew by 2.6 per cent, compared to decline in production by 4.7 per cent in the year-ago period.
Power generation increased by 6.3 per cent in May as compared to 6.2 per cent growth in the same month of 2013. In April-May, power output grew by 9 per cent compared to a growth of 5.3 per cent in the year-ago period.
Commenting on IIP, Ficci President Sidharth Birla said: "While it is reassuring to see some pick up in the growth of manufacturing in May but it needs to be seen in the context of negative base. The encouraging sign is the broad based growth as sixteen out of twenty two sectors have shown positive growth in manufacturing."
The output of consumer goods grew by 3.7 per cent in May compared to the contraction of 6.6 per cent a year ago. However, in April-May, the segment showed a contraction of 0.7 per cent compared to a decline of 2.5 per cent the same period of 2013-14.
The consumer durables segment grew by 3.2 per cent in May as against a decline of 18.3 per cent previously. For April- May, it declined by 2.5 per cent as against a contraction of 14 per cent in the first two months of last fiscal.
Production of consumer non-durables also grew by 3.9 per cent, compared with a growth of 3.8 per cent in May last year. For April-May, the segment has grown by 0.5 per cent, compared to a growth of 7.6 per cent a year ago.
Output of intermediate goods expanded 2.7 per cent in May, compared to 1.1 per cent a year ago. For April-May the output has grown by 3 per cent, compared to 1.8 per cent in the first two months of last fiscal.
Basic goods output grew 6.3 per cent in May, against a dip of 0.3 per cent a year ago. For April-May, the segment has grown by 6.8 per cent, compared to a growth 0.5 per cent in the same period of 2013-14.
India's industrial output grows 4.7 pct in May: Govt
(Reuters) India's industrial production grew an annual 4.7 percent in May, the highest since October 2012, providing welcome positive news for Prime Minister Narendra Modi's new government as manufacturing activity and electricity generation increased.
Finance Minister Arun Jaitley unveiled his first annual budget on Thursday, promising to revive the Indian economy from the longest slowdown in a quarter of a century with a mix of structural reforms and fiscal consolidation.
Output from mines, utilities and factories, grew for the second straight month after a contraction of 0.5 percent in March, government data showed.
Industrial output growth beat expectations of a 3.8 percent rise in a Reuters poll of economists, and April's outturn of 3.4 percent.
India's economy has grown by less than 5 percent for two years, dragged down by weak industrial output and investment. Growth needs to be faster to create jobs for the 1 million people who enter the workforce every month.
Modi, who took office in May with the strongest parliamentary majority in 30 years, has vowed to engineer a turnaround by stepping up investment and clearing regulatory hurdles for businesses.
"It shows that things have started improving," said Rupa Rege Nitsure, chief economist at Bank of Baroda.
She cautioned, however, that weak monsoon rains could deal a blow to any economic recovery.
"Just going by this data one cannot say the trend will necessarily be improving henceforth, given the risks of a deficient monsoon and its impact on the whole consumption side of the economy," she said.