Most Indian companies are on a roll. But success brings its own problems, and the economic tides do change.

So, while most companies are getting ready to capitalise on the good times that certainly seem ahead of us for at least the next one year, and while the medium-term prospects for the economy as a whole have got better, there is the danger that optimism is running ahead of the facts.

Even if it isn't, some defensive strategies seem in order. Without them, those companies that are relying on short-term upswings will be caught unawares when the tide turns -- as it must, and as many were when the winds suddenly changed in 1996.

To take the most obvious instance, it is obvious that today's steel prices are unsustainable for any long period of time; so any projects or calculations based on these prices will almost certainly come unstuck in a year or two.

The same goes for many other commodity prices, which have generally been on an upswing -- the average increase in metal prices over the past year is somewhere between 20 and 25 per cent, which in low margin industries spells an absolute bonanza. Since a downswing must follow an upswing, be warned!

Then there is the facile assumption, made implicitly by many players, that our exports will keep growing (contributing to the boom), while no one worries about import competition.

But if the exports of software and IT-enabled services and pharmaceuticals and textiles and what-have-you do keep soaring, and imports don't keep pace, nothing that the RBI or anyone else can do will prevent the rupee from rising against other currencies.

The downstream correction too will inevitably come: exporters with the smallest margins will be priced out of their markets, and imports will offer new competition in many new market segments.

The rupee has just begun to show a little strength and the growth rate of exports has already slackened; if the trend persists, you're going to see some troubled companies. So watch your costs and margins, and see how to build markets on strengths other than just price.

Some of the reasons for today's boom are a consequence of one-time or short-term causes. The near-perfect monsoons this year, for instance, gave a big boost because last year saw a bad drought. But that only raises the bar for next year, and will impact growth then.

Even another great monsoon will not give the same growth impetus, and may just aggravate the problems of plenty that will surface this year.

Equally, while the banks (and their borrowers) are celebrating the sharp fall in interest rates, how many of them have provided for the eventuality of interest rates rising? Some have, but many haven't. What will that do to bank profits, and to bank stock prices, for instance?

And how many have registered that close to half the increase in profits that companies are announcing right now in what is a heady period of great corporate news, is on account of lower interest costs alone? This too is a story that cannot be repeated, and has clear elements of a one-time bonanza.

Then there is the issue that everyone is now bored with: the fiscal deficit. So many observers and commentators have hammered away at the point since 1991, to no apparent purpose, and people have started looking away. Some even argue that the deficit is evidently not doing any harm, so why worry about it at all?

There could have been some merit in a pump-priming argument when the economy was out of steam, but certainly not today. In fact, the deficit is meant to be used as a counter-cyclical weapon, to pump up government spending in bad times.

But when the deficit is already way too high in the boom times, there is no elbow room left for a counter-cyclical surge in spending. Indeed, boom times and high fiscal deficits are a dangerous combination in many other ways. And it is difficult to argue that the Indian economy has taken leave of the laws of economics.

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