The most resonant question for India in the coming year is whether the tentative economic recovery will gain momentum or lose steam?
The question needs to be seen in the context of what the Indian economy has gone through over the past 18 months. It has been a course correction in three stages.
The first stage was the stabilization of an economy that was very fragile, thanks to economic imbalances that had been allowed to build up in the final years of the Manmohan Singh government. India paid the price for fiscal recklessness. Economic vulnerability was at dangerously high levels because of the toxic combination of a high fiscal deficit, a record current account deficit and persistent inflation. It was no surprise that the Indian rupee was hammered in August 2013 as global risk aversion spiked.
The successful effort to pull India back from the brink began in the twilight months of the previous government, with P. Chidambaram in the finance ministry committed to reducing the twin deficits while Raghuram Rajan at the Reserve Bank of India (RBI) was fighting inflation with interest rate increases.