Green shoots of growth and signs of recovery may have begun appearing, pointing towards an economic turnaround, but the path of revival is anticipated to be a slow and strenuous one. Analysts believe that India Inc., including the MSME segment, will have to face stiff challenges before they can completely emerge from the shadows of the unprecedented crisis.

A recently released macro-economic report by the Reserve Bank of India (RBI) has cautioned the Indian corporate sector to be on its guard although positive signs are evident from quite a few quarters, revving up resurgence hopes.

Caution is the watchword

The RBI’s report recommends that the Indian SME sector watch out for growth-impeding factors such as delayed monsoons, a persistent fall in export volumes and higher raw material costs in the ensuing quarters, despite the positive growth shown in the Index of Industrial Production (IIP).

"Although analysts in the recent past have predicted bright growth prospects in core sectors and the business environment is also looking up, growth figures could still go off the mark if the global scenario takes a negative turn. Moreover, delayed monsoons and persisting negative impact of the global recession on some key industries may dampen the overall growth outlook," said F Haque, Senior Analyst at SKP Securities in Kolkata.

The report by India’s apex bank has also predicted that food and raw material prices are likely to move northwards in the coming quarters even though inflation seems to be heading towards positive levels by the end of 2009.

The sharp fall in the production of commercial vehicles, the negative growth in capital goods and an accelerated fall in import growth witnessed over the past few months indicate the continuation of weak domestic demand conditions. This has further made the industry experts sceptical about an 8.7% growth of the Indian economy during the current financial year.

"Although stronger signs of recovery are appearing, we still cannot conclude that the recession-hit Indian economy will scale a high-growth path in the forthcoming months. It is still too early for us to say when the global market will rebound fully," said A Goyal, Financial Executive Officer, East India Securities, a Kolkata-based firm involved in trading activities.

However, despite the prevalent uncertainty in the global conditions acting as a drag on the Indian economy, the domestic SME segment has been recommended to continue to show resilience.