The year 2007 will gladden the hearts of economic policy makers. It ends on a high note of continued economic buoyancy, daunting GDP indicators, modest inflation, and India remaining a favourite destination in the boardroom of multinational companies. It is legitimate that the current policy managers take credit for these many favourable outcomes. It is another matter that many view the current growth to be on auto-pilot.

Mumbai is believed to have decoupled from Delhi and there is palpable absence of significant policy initiatives. The comment, that why tamper when things are going well, suggests complacency and can at best be comforting in the short term.

So how to sustain this trend in 2008?

• First and foremost, a reassertion of prime ministerial authority. There is a growing perception both nationally and internationally of a weakening of the prime ministerial writ on coalition partners, many of whom have increasingly begun to believe and behave as if they were governments in themselves. The tardiness in the award of contracts for the prestigious road projects or the mess in the decision-making on spectrum allocation are anecdotal examples.

Given his unimpeachable integrity, a reassertion of prime ministerial authority could qualitatively alter perceptions and improve governance quality.

• Second, a continuation of strong macro fundamentals. Compliance of the quantitative targets under the FRBM Act may have been achieved but, as is well known, there are significant under-recoveries from the petroleum sector. There is also under-provisioning for the fertilisers subsidy. Besides, the food subsidy bill will continue to rise. The inevitable impact of these factors on consumers needs to be gradually calibrated, notwithstanding its inevitable fiscal and inflationary implications, to avoid a rough landing. Looking at global shortfalls in food production due to unfavourable climate and land diversion to bio-fuels, international food prices in the medium term may remain high, and protecting the poor would entail rising subsidy bills. The revamping of the public distribution system thus assumes urgency.

... contd.