Think back to May 17, 2009. The 15th Lok Sabha elections delivered a clear verdict. The UPA won decisively. Every market maven predicted that the next five years will see a new wave of economic reforms. The Sensex soared.
Fast forward to January 2011. Expectations have been replaced by despondency over the lack of reforms. Naturally, the UPA feels pressured to deliver in Budget 2011. Speaking at a rare press briefing, the prime minister promised that the budget will give a clear picture of reforms in the economy.
But the question to ask is: does the economy need big-bang reforms or does it need its government to get back to basics?
At the top of the "fix it" list should still be the fiscal deficit. A large section of the government seems to believe it is no longer a worry. After all we will end 2010-11 with a respectable 4.8% fiscal deficit. But the government is well aware that has been achieved by the arithmetic of a larger GDP base and one-time collections from divestment proceeds and 3G auctions.
So what happens next year? How will it maintain a fiscal deficit target of 4.8% with gross government borrowings forecast close to Rs 4,70,000 cr?
This has the RBI and bankers worried. Liquidity is tight, deposit growth is slow and credit demand is high. Will a heavy government borrowing calendar push market rates higher and squeeze availability of credit? It can't be ruled out.
Then there is the problem of the inflationary fires that the deficit is fanning. The government should certainly not be confusing investors by following an expansionary fiscal policy when the monetary policy is struggling to control inflation.
If all this esoteric talk about fiscal deficits doesn't hit home, here is something closer to the ground - subsidies.
The government will spend an estimated 2.5% of GDP on subsidies in 2009-10, above the 2% of GDP announced in last year's budget speech. Higher support prices for key crops, a 60% jump in the fertiliser subsidy bill and an increase in global oil prices are among the causes.
The next year could bring new pressures. If the food security bill is introduced, food subsidies could spiral up to Rs 100,000 crore. If wages under the rural employment guarantee scheme are linked to the consumer price index as is being discussed, minimum wages could rise by 15 to 30%.
Now no one is arguing against the need for these subsidies.
All we are doing is to ask the government to fix the subsidy mechanism. Find a way to target subsidies more effectively, perhaps using the UID. And most importantly, make sure the subsidy reaches those for whom it is meant.
So the question: Why is the prime minister still stuck on reforms?
Shouldn't the government focus on delivering what it has already promised?
If it does, I suspect the clamour for big-bang announcements will die down. Corporates will get back to their shop floors. Investors will return to their trading terminals. And India will be back on the cobbled path to growth.