As the Modi Government's first year claims on economic management - such as inflation control and subsidy cuts - are indeed the work of falling prices of imported oil, coupled with what looks like a global deflationary wave, its record is being weighed down by tardy progress with supply side and structural reforms.

Undoubtedly, the NDA Government is effectively tackling some of the issues like coal auctions and has raised FDI caps in key sectors including insurance, railways and defence, but signs of response from foreign investors have so far been negligible. Government's difficulties in getting some of key legislations like land and on coal and mining sectors have dampened the investor enthusiasm.

For a Government which has linked up India's development with substantial flows of foreign capital and has progressed to some extent in easing procedures for doing business, the outlook for private investments, both foreign and domestic, still remains somewhat clouded. While investors look for more concrete outcomes in removal of structural impediments, the hold-up of key reforms that even a politically powerful Government confronts has added to some scepticism.

India's current efforts to raise growth and improve its fiscal position are well appraised by both IMF and OECD which have revised projections at a 7.5 and 7.7 per cent growth respectively in 2015-16, and its overtaking China as the fastest-growing economy in 2016 is widely acknowledged. Both have highlighted structural issues still to be tackled.

The enhanced growth estimates have been based on CSO's significant revisions to past GDP data, raising the base growth rate through 2014. But OECD's Interim Assessment of Global Growth cautions that 'obstacles emerging to the adoption of growth-friendly structural reforms' would make it difficult to maintain rapid growth, 'notwithstanding the strong current momentum'. Government's growth target is 8 to 8.5 per cent.

Mr Jaitley has to sort out key issues related to strengthening macro-economic stability both in regard to inflation and overcoming vulnerabilities for the financial sector given the rising strains in the corporate and banking sectors. His assumption that inflation has been conquered ignores the underlying inflationary pressures (to which the Budget itself will be adding with a cascading impact of a 16 per cent service tax).

Latest CPI data show that consumer inflation had risen to 5.3 per cent in February. Food inflation stood at 6.8 per cent but this average conceals the sharp rise in prices of pulses, edible oils and milk and other food products. IMF says monetary policy should remain tight to reduce inflation and inflation expectations durably. This would call for stronger supply side responses from Government.

While the recent agreement with RBI on monetary policy framework assigns responsibility for price stability on RBI to ensure inflation does not exceed the targeted range, OECD points out there could be no excessive reliance on monetary policy and that a more balanced policy approach, both fiscal and structural, along with monetary policy would be needed to ensure sustainable growth and public finances.

India like other emerging economies has to tackle the spillovers from the financial market volatility in the wake of the possible rise of US interest rates in the first quarter of the new fiscal year beginning April 1, 2015. The US Federal Reserve has signalled it would raise its benchmark interest rate, long held at 0 to 0.25 per cent range since the international financial crisis of 2008, by the middle of the year.

A rate rise in April is not in view but Fed Chair-person Ms. Janet Yellen has said subject to continued improvement in US economic conditions with unemployment rate down to 5.5 per cent in February, 'we do not want to rule out the possibility that an increase in the target range could be warranted at subsequent meetings' of Fed's policy-making committee (FOMC).

The timing of the initial increase in the target range would depend on the Committee’s assessment of incoming information on economic trends including unemployment and inflation. Ms. Yellen said the guidance also did not mean that an increase would necessarily occur in June, 'although we can’t rule that out'.

While the IMF Managing Director Ms. Christine Lagarde during her recent visit to India warned emerging economies against the risk of high market volatility and sudden outflows of capital, with surge in US interest rates, RBI Governor Dr Raghuram Rajan has said India is better placed to meet any impact of an increase in US interest rates as and when it takes place.

RBI management has over the last year ensured that India remained better placed to meet any risks from US monetary policy changes. The country's stock of international reserves has risen to 340 billion dollars by February this year and the current account deficit has also shrunk to below 2 per cent of GDP.

Another risk cited by Ms. Lagarde is the continued strengthening of U.S dollar and its possible impact on emerging market economies. Many countries could become vulnerable because many of their banks and companies have sharply increased their borrowing in dollars over the past five years. For India, it is more applicable to the build-up of debt of corporates over recent years.

Overall, besides external shocks, there are still some underlying risks for the Indian economy in regard to price movements in the coming months and the uncertainty at present about monsoon behaviour in 2015. Apart from a measure of price stability, Mr Jaitley has to deliver on the promise held out for job creation through revival of growth and investment and ensuring that 'Make in India' does not remain an empty slogan. The Modi Government is certainly trying to make up for the shortfalls in performance with other measures like the proposed law to help unearth black money.

As the economy enters the new fiscal year, there are even harder tasks ahead for the Finance Minister to establish credibility for all the promises implicit in his much-boosted Budget which the Prime Minister described as “progressive, prudent and pragmatic”. Millions of middle classes in particular await results. (IPA Service)