Even though business sentiment is looking up and the index of industrial production (IIP) have raised the hopes of an early revival, poor monsoons and persistent fall in the export sector are likely to dampen the growth prospects of the Indian industries in the current financial year.

C Rangarajan, Chairman of Economic Advisory Council (EAC) to the Prime Minister anticipates that the country’s economic growth rate may slide to 6-6.5% in 2009-10 due to the weak rainfall.

Thorns in green shoots

Although green shoots have begun emerging in most sectors and visible signs of revival are being witnessed in the domestic economy, poor monsoons and persistent decline in exportsmay cause the growth rate of the Indian economy to remain muted in the current financial year.

“The impact of poor monsoons may not be severe but it can underplay the overall growth outlook of several key sectors and have a significant impact on the Indian economy,” said A Goyal, Financial Executive Officer of East India Securities, a Kolkata-based firm involved in trading activities.

Worsening dry conditions in India threaten to slow down the growth of several sectors dependent on monsoons and subsequently derail the recovery of the Indian economy. The rural demand is also projected to take a major hit due to the poor monsoons.

“A fall in rural demand will impact the overall outlook and dent the prospects of a nascent recovery as major sectors such as fast moving consumer goods (FMCG), cement and auto among others, depend heavily on the rural segment. It may also compel the Reserve Bank of India (RBI) to stick to its monetary policy longer than planned given the possible hit to rural demand resulting from a bad monsoon,” said S Kumar, Senior Analyst at RK Securities in Kolkata.

Therefore, India Inc., including the MSME segment has to tread with caution and brace up for some obstacles even as other parts of the economy show signs of recovery.