Are the clouds of recession lifting over the Indian economy as they seem to be over the rest of the world? That is the big question everyone is asking today, whether they be economic analysts or policymakers in the central government and the financial institutions.

The outlook is definitely promising as even the Asian Development Bank has revised its growth projection for India up to six percent from an earlier one of five percent for 2009 based on the fact that public spending has gone up, industrial production is rising and there are signs of better business confidence.

Others are pinning their hopes on positive indicators like the latest advance corporate tax collections which have risen by 14.7 percent in the second quarter of 2009-10. Simultaneously, the stock markets are surging while foreign institutional investors (FIIs) are making their presence felt once again in Indian markets.

In other words, it looks as if the good times are back. The only problem is that the drought has spoiled the party.

Farmers in most parts of the country, especially in rain-fed areas, are in distress with cattle dying due to lack of fodder and failure of crops. Though late rains have taken place in many areas, reducing the overall monsoon deficit, they have not been in time to help the standing kharif (summer) crop.

The rains will no doubt help in early sowing for the coming rabi (winter) crop but have not been of much help to farmers faced with failing summer crops which include paddy, pulses and oilseeds.

The other major challenge still facing the economy is price rise, especially of food products. The wholesale price index has just begun to rise marginally, giving the impression that price rise is not taking place, but the consumer price index has gone up by about 12 percent and is a more realistic indicator of what the common man is going through at the retail level.

Prices of food items have literally gone through the roof with even the poor man's diet of "dal-chaawal" (lentils and rice) being badly hit. Prices of tur dal, for instance, have touched Rs.90 per kilogram.

This is basically a supply side problem and the government is trying to ensure that sufficient imports of pulses and edible oils are carried out to stabilize prices over the next two months of the festival season when there is a seasonal rise in demand. Inventories of both wheat and rice are sufficient, according to official estimates, to meet the demand for the next 12 months, but prices of other items like sugar, fruits and vegetables have been going up relentlessly in recent weeks.

Despite the gloomy scenario on the food front, there is cheer in other sectors of the economy. For instance, the total inflow of funds by FIIs crossed the $10-billion mark this week. This comes after a year of net outflow of $12 billion in 2008 and a record inflow of $17.7 billion in 2007.

The renewed inflows have led to a recovery in the stock market and the Sensex of the Bombay Stock Exchange has reached 16,888, its highest level in 16 months. Similarly, advance tax collections have gone up by 13.1 percent in the second quarter (July-September) from a fall of nearly six percent in the previous quarter. The higher tax inflows reflect the resurgence of Indian industry which grew by 8.2 percent in June and 6.8 percent in July.

What comes as even better news for the UPA government, which initially came to power on the promise of more jobs for the "aam aadmi" (common man), is the news that firms have restarted hiring. The job freeze seems to be over. Media reports indicate that technology companies like TCS, Infosys and Wipro which used to recruit many engineers in the past but had frozen hiring during the last year, have now begun to offer jobs once again, though in small numbers.

The development has come on the heels of growing global demand which has come as a relief to beleaguered export industries like the gems and jewellery sectors. Reports are coming in about artisans being rehired as demand in diamond cutting centers like Surat picks up. These areas had seen thousands going back to their villages after losing jobs owing to the crash in exports.

Finance Minister Pranab Mukherjee has already gone on record to project over six percent growth in the current fiscal, while warning that the second and third quarters may reflect the impact of the drought. The ADB, while raising its growth prediction to six percent, cited increase in public spending, quicker than expected return of capital inflows, stronger industrial production and improved business confidence as the major reasons.

What is even more encouraging is that the bank has forecast seven percent growth for 2010, up from the earlier prediction of 6.5 percent.

Of course, India remains behind China which is expected to have 8.2 percent growth this year and 8.9 percent next year. Even so, Prime Minister Manmohan Singh attended this week's G20 summit with the confidence that India is one of the fastest growing economies in the world right now.

In any case, it is clear that India, like the rest of the world, is slowly emerging out of the recession. US Federal Reserve chief Ben Bernanke has already made the definitive statement that the recession is over. For India, however, the problems of the agricultural sector remain a hurdle that will have to be overcome if it is to get back to a high growth path. On the plus side, it looks likely that the forthcoming winter crop will yield higher wheat output than last year and this will give a further boost to domestic food grain stocks.

The recessionary blues may thus take a while to blow over, but clearly all the signals point to a partial recovery by the next fiscal.

(Sushma Ramachandran is an economic and corporate analyst. She can be reached at sushma.ramachandran@gmail.com)