The author is chief economist, Crisil.
Taken together, the last two years demonstrate quite conclusively that the Indian economy has become immune to many things that would have been quite disruptive, even destructive, not so long ago.
In 2004, we saw a change in government from one that was gathering steam on economic reforms to one in which 'reform' still evokes ambivalent feelings. This was followed by yet another inadequate monsoon, the second in three years, continuing the see-saw pattern in rainfall that has manifested since 1997.
Right through the year, oil prices increased incessantly, to levels comparable, in real terms, to the big shocks of the early 1980s and the brief spurt during the Gulf War of 1990-91.
During 2005, oil prices continued to dominate the global economic scenario. They stabilised towards the latter part of the year, although at historical highs in real terms and look unlikely to fall in the near future.
Early perceptions about the ruling coalition's distrust of market forces and disposition towards direct redistribution measures were reinforced. Mumbai, Bangalore and Chennai, all powerful engines of growth, went through massive floods. Their collective experience revealed just how close our urban systems were to the brink of collapse.
None of this, and more, seemed to matter to the macroeconomic numbers. GDP grew at 6.9 per cent during 2004-05 and at over 8 per cent during the first six months of 2005-06. Inflation spurted briefly, but, considering the levels that oil prices have reached, was hardly ever a threat.
It did induce the Reserve Bank of India to increase short-term interest rates thrice since October 2004. One might have expected these moves to have some impact on credit growth, but apparently not. Consumer demand, fuelled by borrowing, continued unabated.
But, more importantly, over these past couple of years, investment spending, which had virtually dried up since 1997, was a major contributor to the growth momentum. This, perhaps more than anything else, indicates that longer-term expectations of economic performance are independent of recurring shocks to the system, however sharp and intense they might be.
And, finally, given the robustness of capital inflows, we are finally able to view an expanding current account deficit the way it should be: a very good thing and not a sign of impending crisis.
Now come the tricky questions. The experience of the last couple of years has certainly shown that the economy can grow reasonably fast regardless of the external and internal environments. But, is being shock proof enough to accelerate growth? And, without accelerating growth, will the shock-proofing itself endure?
The ability to weather shocks and stay the course is a huge asset to any economy. As we have seen in our own case, it gives comfort to people who want to make long-term commitments.
From cross-country evidence, it is pretty clear that macroeconomic stability over long periods of time, which is what shock-proofing essentially provides, is critical to providing a hospitable investment climate, which, in turn, leads to faster growth.
However, macroeconomic stability does not work in isolation. Two other sets of factors are critical to the rapid growth equation.
Openness is one. On that score, India is reasonably well placed. Trade accounts for an increasing portion of GDP. Merchandise exports and imports are slightly over 25 per cent of GDP; adding up service exports, the number would cross 30
The other is how a country deals with its people resources, actual and potential. Education, training and the flexibility of the labour market, which makes it as easy as possible for people to move from sunset to sunrise activities, are all essential elements of a growth-enhancing human capital package.
Here, in my opinion, is real cause for despair. There is a complete mismatch between the people who are looking for work, in terms of both their numbers and their skills, and the opportunities available to them. Both the educational and training systems and labour market regulations are responsible for this.
Unfortunately, this government's response has been to avoid confronting the problem and look for, as indicated above, directly redistributive solutions. No one would deny the legitimacy and usefulness of social safety nets, which is essentially what employment guarantees and affirmative action are.
But, to see them as substitutes, rather than complements, to a market mechanism that matches the supply of people and skills to job opportunities is unjustifiable. In terms of the growth framework described above, the absence of a constructive, market-based human capital policy will significantly dilute the potential contributions of both shock-proofing and openness.
Well, all right, faster growth will have to be sacrificed for political compulsions, however illegitimate they may appear to the detached observer. Will the shock-proofing endure? In other words, is the current rate of growth amenable to cruise control? Very likely, yes.
There is a self-reinforcing element to the combination of macroeconomic stability and openness that has brought us this far. Critical minimum levels of investment and other activities that are needed to sustain these growth rates will happen in this scenario.
Several new activities are fortunately outside the grip of employment-deterring labour market regulations. These have provided a safety valve for the supply-demand mismatch.
The increasing penetration of consumer finance combined with increasing affordability is allowing more and more households to practise 'consumption-smoothing' -- letting long-term expectations of income determine current consumption.
There are risks in this, of course, but not enough to outweigh the short-term macroeconomic benefits. And, as far as infrastructure is concerned, as bad as the situation is, a combination of private solutions and substitution (telecom connectivity making up for traffic congestion, for example) provides just that little bit of room.
In short, from an economic perspective, 2006 starts off on a relatively comfortable note. The shock-proofing and openness -- dividends from a decade and a half of reforms -- are safely in the bank and will not erode in a hurry. But, we must recognise the limits to their ability to take the growth rate higher than it has been over the last couple of years.
If this is acceptable, we can all get back to business as usual. If it isn't, then a new series of shocks by way of policy reforms is called for. We know we can deal with them.
The views here are personal.