Implementation: UPA's Big Reforms Challenged

Rising inflation has been another worry. This is a major deterrent for the Reserve Bank of India (RBI) easing its monetary policy to cut key lending rates to boost credit growth in the economy. RBI governor D. Subbarao has said that inflation had to be brought down further. The RBI cut the CRR by 0.25 percent but has kept the repo rate unchanged since April because of inflationary pressure and widening fiscal and current account deficits.

The current account deficit (CAD) stands at 3.9 percent of GDP in the first quarter of FY13.Goldman Sachs estimates it will likely trend downward due to the sharp depreciation of the rupee. S&P also estimates CAD to stand at 3.5 percent for FY13. The Goldman Sachs analysis states the rupee stands to gain with improved CAD and greater capital inflows, and pegs the 12-month rupee-dollar target at 51. The estimates, however, dim for the fiscal deficit. S&P estimates it at 6 percent for FY13, much higher than the government’s target of 5.1 percent.

The government needs to set the ball rolling on reforms at the earliest to curb the downward growth spiral. Whether it is able to juggle political compulsions and its reforms agenda remains to be seen.