The UPA's gush of reforms since September may have come a bit late to arrest the economic slide this year. So while the list of budget announcements in various stages of implementation shows a considerable effort by the government to put the economy back on the rails, growth in 2012-13, admits the finance ministry's mid-year review, will remain below 6%. This of course comes with the customary warnings that both fiscal and monetary policy need to be supportive to sustain investor confidence and the government must chip away at the supply kinks that keep prices aloft in India. The good news is that the economy has bottomed out, with industry showing signs of revival, the winter crop making up some of the losses of the delayed monsoon and services riding on this turnaround. The joker in the pack is inflation which, as the central bank doesn't tire of pointing out, may surprise with its persistence.
In the format that the finance ministry presents its mid-year review, there is extra emphasis on announcements made in the budget and their fate. In this the 2012-13 review offers a peek into the government's reformist resolve. Among the announcements implemented is evolving consensus over foreign investment in supermarkets, a harmonised master list for infrastructure industries, seed funding for the Delhi-Mumbai Industrial Corridor, capital for rural banks, allowing international airlines to buy into local ones, foreign loans for power projects, and bills on micro-finance and small industries. In the works are a switch to cash transfers for subsidies, overhaul of direct and indirect taxes, pruning of centrally sponsored schemes, and five missions to raise farm yields. This is commendable progress on budget proposals made by Pranab Mukherjee and implemented by P Chidambaram, who has also drawn his own reforms roadmap for the rest of the UPA's term.
The back-loading comes with a price, though. The fiscal deficit is now expected to reach 5.3%, higher than the budget target. Mr Chidamabaram is taking this as the start of the journey to a 3% fiscal deficit in five years. He will have to ensure the milestones for the first two are met despite looming elections. Also ambitious tax reforms predicated on an economy growing at 8% will have to be reviewed against the current revenue performance. Critically, the road ahead for Mr Chidambaram is smart spending, given that he is unlikely to be able to convince the Congress to whittle down welfare in an election year. For instance, a study commissioned by the finance ministry suggests a one-shot 30% increase in diesel prices could lower average inflation in 2011-15 from 7.13% to 5.68%.