Where are things headed? "The pick up will be limited to the industrial sector only", according to Madan Sabnavis, Economist at Larsen & Tourbo Ltd. "There was low growth last year, therefore on account of a low base the recovery could be overstated," he adds. He believes that the pick up in non-food credit growth could be due to retail borrowing.

Sabnavis believes that the growth in exports in July and August is due to very poor export numbers in the same period last year. And the low base effect is making the picture look rosy.

Economists believe that fresh demand for industrial goods could be affected by the drought and therefore they are sceptical about the continuation of high growth in the industrial sector.

"The growth we have been seeing in the last few months in the industry are mainly due to rural demand resultant from good crops last year. But as a result of the drought this demand will taper off", says an economist at a private sector bank.

On the US recovery, analysts'' view that no further cuts by the US Federal Reserve is an acceptance of the fact that things are stabilising. They believe that now what remains is an investment slowdown and consumer demand still continues to grow. The demand for cars and housing is moving up and analysts do not see the possibility of double dip before a recovery.

Oil prices are expected to remain on the higher side, as solution on the US-Iraq strife is still not in site. Although fuel-based inflation will move up but there will be no runaway inflation as sufficient food-stocks will prevent a rise in food prices. Therefore, the impact of inflation on growth will be minimal. In view of the above factors, RBI''s projected GDP growth of 5-5.5 per cent looks realistic.

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