The Indian economy, whose prospects looked bleak with tsunami devastation and inflationary pressure due to soaring international oil prices at the beginning of the year, was on a roll in 2005 providing the necessary launch-pad to make the country an economic powerhouse with over eight per cent growth in the new year.
Surging stock market with Sensex hovering around 9,200 points, inflation at less than five per cent, interest rates benign, merchandise exports likely to touch $100 billion and over 8.1 per cent growth in the first half of this fiscal, the economic prospects have never been so good with strong macro-economic fundamentals enabling the country to move on to the higher growth path of 8-10 per cent in 2006.
Compulsions of coalition politics and particularly pulls from Left parties, some of the reform areas like divestment, FDI in retail, insurance, pension and banking reforms might have received some set back during the year, but overall the liberalisation process has moved forward quietly especially in infrastructure development like roads, airports, ports and railways even though the economy was far away from removing critical bottlenecks to growth.
Economic pundits and market analysts are gung ho about the outlook in the New Year and have joined Prime Minister Manmohan Singh and Finance Minister P Chidambaram in revising upwards the growth prospects from about 7-7.5 per cent to now over eight per cent in the current fiscal.
Their optimism stems from improved performance in agriculture coupled with near double-digit growth in services sector, which accounted for a little over 50 per cent of the country's over $700 billion GDP and the buoyant industrial sector at a little over eight per cent growth.
But sectors like mining and energy have not performed well so far this fiscal causing some anxiety and worry signaling the need to push up power sector reforms particularly toning up the functioning of state electricity boards and hastening the liberalisation of the coal sector to allow large private players and foreign direct investment into the crucial area in the New Year.
Both Manmohan Singh and Chidambaram have described the problems in these areas as intractable but promised to take some immediate steps to deal with them, failing which they could become a drag on higher growth.
Expectations of robust growth have lured foreign funds to invest a record $8.9 billion, taking the benchmark stock index up by nearly 40 per cent in 2005 and what is significant is that there is higher than expected growth of the trade, hotel, transport and communication segment in the first half of the current fiscal.
The progress on fiscal consolidation this year has been by and large satisfactory with encouraging signs in overall tax collections in the first half of current year coupled with reasonable success in expenditure control, according to the Mid-year Economic Review.
But economic analysts felt fiscal and revenue deficits of both the states and the Centre were still none too comfortable requiring drastic measures to set the house in order.
Though trade deficit widened due to surging imports mainly that of capital goods, the overall external and balance of payments situation was quite comfortable with surging foreign exchange reserves at over $140 billion, merchandise exports expected to touch $100 billion and services exports at about $50 billion this fiscal.
A major development that seems to have gone unnoticed is that the government sought to make the growth process all inclusive. As prime minister himself said that instead of restricting the growth process to benefit only at the top of the pyramid, the reform is being attempted to have trickle down effect to provide wealth of opportunity to the bottom of the pyramid as well.
To unlock the true potential of the Indian economy, the government has embarked upon the four-year business plan called Bharat Nirman to create necessary infrastructure at a cost of Rs 1,74,000 crore (Rs 1740 billion) to achieve identified goals in six selected areas of rural infrastructure - irrigation, rural water supply, rural housing, rural roads, rural telephony and rural electrification.
Bharat Nirman taken together with the initiative to guarantee rural employment, through the implementation of the National Rural Employment Act and the initiative to improve rural health, through National Rural Health Mission and rural education through Sarva Shiksha Abhiyan, there is certainly going to be a new deal to rural india provided they are properly implemented.
It is not that ambitious programmes have been embarked upon only for rural India. The government also launched the Urban Renewal Mission aimed at setting right the infrastructure in the top 60 urban areas in the country including the major cities.
One of the key areas for pushing up growth is agriculture. The prime minister has promised to make India the granary of the world by bringing about second green revolution. Budget 2006 is expected to unveil a lot of initiative apart from moving our tariff towards ASEAN (Association of South East Asian Nations) level.
The government has already embarked upon national horticulture mission besides focusing on technological breakthroughs for scaling up yields. The New Year may see efforts to liberate Indian agriculture from controls that shackle its potential.
Many states, as Manmohan Singh says, have been nudged into amending agriculture produce marketing control acts and removing constraints to farm trade.
An integrated food law, transferable warehouse receipts and advanced forward market in commodities, along with amendments to the Essential Commodities Act are some of the steps towards having a single integrated market for the farm sector in the near future.
There was no doubt about some forward movement in 2005 in further liberalising foreign direct investment regime and it has been unshackled in telecom, publishing, real estate and in asset reconstruction firms.
But lot more needs to be done.
Apart from Rs 1,74,000 crore to be spent in the next four years under the Bharat Nirman programme, the government is to spend Rs 60,000 crore (Rs 600 billion) in Urban Renewal Mission, an additional Rs 1,70,000 crore (Rs 1700 billion) on highways programme. That apart, a massive spending is expected in the 'National Rural Employment Guarantee Programme'.
The government has also proposed to spend Rs 25,000 crore (Rs 250 billion) on the railway freight corridor project to connect Mumbai, Delhi and Kolkatta and also on modernisation of Delhi and Mumbai, Chennai and Kolkata ports as well as major ports in the country.
There is a lot of investment taking place already in the telecom sector in which two million lines are added every month.
These are some of the gigantic plans that are expected get new thrust in the new year and these would push up the country's growth rate to 9-10 per cent in the next 2-3 years.
The New Year may see rationalising of the current FDI regime on which a Group of Ministers is working. Besides, Singh has said recently that a positive outcome could be expected on opening up the retail sector to FDI in the next 5-6 months.
Labour reform is yet another key area which has remained thorny. Singh has repeatedly said labour markets would have to be made more flexible to attract more investment, for which consensus has to be arrived at.
This was necessary, as 10 million jobs have to be created every year to absorb growing demand for employment. The country can attract investment and labour absorbing technologies only if labour markets are made more flexible. There could be forward movement in this area as well in the New Year.