New Delhi, July 14 - Finance Minister Pranab Mukherjee Tuesday said the Indian economy was showing signs of recovery even as he defended the government's high fiscal deficit and borrowing programme as necessary to fund welfare schemes and spur growth.

Replying to the debate on the national budget in the Lok Sabha, the lower house, he also categorically said the United Progressive Alliance (UPA) government remained committed to divesting stakes in state-run firms without diluting their public sector character.

'There are some early indications of recovery,' Mukherjee said in his 50-minute reply on the debate pertaining to the national budget he presented July 6. 'I see some turnaround in the third quarter of the current financial year.'

The finance minister said some positive signs were visible in sectors like steel and cement, which saw production rise 13 percent in June. While the auto industry saw its sales rise 13 percent, consumer durables continued to log double-digit growth.

'This is a small beginning. We are not out of it yet. International business scenario is still not out of the woods. It will take some more time. But our strategy of generating internal demand, enhancing the purchasing power, has helped us.'

He also invoked the rain god Indra, as monsoon - on which depends 60 percent of India's farm sector - has been erratic this year, and said: 'I am not pessimistic like others. There is still time. If we have good monsoon, it is possible we have higher growth rate.'

The finance minister had presented the $204-billion national budget July 6 that stepped up allocations for welfare schemes and infrastructure, along with a declared vision to reach the fruits of progress to each of the country's 1.17 billion people.

Mukherjee said some members were not correct when they felt that only 1 percent of the total government's expenditure was earmarked for agriculture. 'If you look at all the various measures, it is one-fourth of the total expenditure - 25 percent.'

He said looking at the way the 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) had moved after his budget, he had sensed some disappointment that not enough was spelt out on the government's divestment policy.

'Perhaps, people expected me to announce the names of the companies and how much money we intend to raise,' Mukherjee said, adding the government's policy on divestment was spelt out in President Pratibha Patil's address to the joint session of parliament last month.