The gloom seems to be overwhelming. After the horror of the Mumbai terror attacks, the news on the economic front has been increasingly dismal. Fortunately, India appears to be better off than many other countries facing the repercussions of the global financial meltdown.

Though the GDP growth rate for the year has been scaled down from nine percent to about seven percent, there is still hope for some positive growth which cannot be said either for most rich countries or even the fast growing emerging economies.

At the same time, the latest data on industrial growth is certainly worrying with the output showing negative growth for the first time in 15 years. This brings the overall industrial growth for the first seven months of the current financial year (April-October) to a meager four percent as against nine percent last year. It is now clear that the impact of the global recession on the Indian economy has been greater than expected.

One of the reasons that economists and analysts did not expect such a drastic effect on industry, especially the manufacturing sector, was that the Indian economy is not as dependent on exports as many other Asian countries. Domestic demand has continued to remain one of the major drivers of economic growth, especially given the huge size of the Indian market.

But the dip in industrial output in October - about 0.4 percent - surely indicates that globalization has made greater inroads than had been thought possible till now. With the slowdown in the manufacturing sector, the next big concern is going to be whether this will translate into loss of jobs in a big way. Some industries have already reported job losses, most notably the aviation companies, but these have been in relatively high paying segments.

What is of more concern is the loss of jobs in export sectors like handicrafts and textiles where tens of thousands of artisans and skilled workers are likely to be affected. Media reports say that workers in export centers like Panipat and Moradabad have already been hit as export orders have crashed owing to the recessionary conditions abroad.

One can only hope then that the stimulus package unveiled by Prime Minister Manmohan Singh will have some effect in reviving demand, especially with the infusion of funds into infrastructure. The package has been criticized as being too little and too late but given the fact that the exchequer already has to deal with a widening budget deficit, it is clear that the government would have been hard pressed to take out more funds for such a revival plan. Hopes are now being pinned on the next phase of the stimulus package which could be more in terms of policy liberalization as has been hinted at by Commerce Minister Kamal Nath.

In the midst of the bad news on the economic front, one must stress the need for the prime minister to quickly hand over the finance ministry to a full time finance minister. Though in the past, several prime ministers have presented budgets, the task of the head of government has now become increasingly complex and wide ranging. Besides, with the latest round of terror attacks, the prime minister will need to focus more on ways to combat terror and mobilize the international community to bring more pressure on Pakistan to tackle the terror groups operating from within its territory.

In addition, general elections are on the anvil in just a few months from now and political developments will be taking place at a fast and furious pace. In such a scenario, it would be prudent for Dr. Manmohan Singh to take off his economist hat and put on the politician hat with a vengeance. And appoint a full time finance minister who can give this tricky portfolio his undivided attention.

The new finance minister will have to contend with a shaky economy, but the gloom is not quite as unrelieved as it appears from the cassandras of doom that appear to dominate the media. Firstly, inflation is moderating. Clearly, the efforts of the Reserve Bank of India to inject more liquidity into the system have had the desired impact on inflation. From a high of nearly 12 percent, the rate of price rise has been gradually brought down to eight percent.

Though it is still a far cry from the desired target of four percent, it still means the consumer is getting some respite from soaring prices. Secondly, world crude oil prices have crashed from levels of $150 per barrel just a few months ago to around $45 per barrel.

Apart from impacting inflation, it will help in keeping the fiscal deficit under control. It will also help reduce the burden of under-recoveries on fuel sales by the national oil companies. And finally, agricultural output growth is heartening at around four percent. A good rabi harvest will ensure buoyant demand in rural areas and that is expected to help in reviving industrial production over the short and medium term.

In other words, the gloom is not as unrelenting as it appears at first glance. Yet another silver lining is that the government seems to have taken the financial crisis as a challenge and is gearing up to tackle this hydra-headed monster. Whether it succeeds or not will be seen over the next few months. But the fact is, the kind of global financial meltdown that has taken place in recent months is unprecedented for the world economy. And few are prepared to make any predictions about the impact on the Indian economy which has gradually over the years become more integrated with the global economic scenario.

The only thing that one can be sure of is that this is a challenge facing the United Progressive Alliance government which has to walk a tightrope to balance the budget while trying to remain popular before facing the electorate in the general elections.

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