Along with the Diwali lights sparking across the country, the economy looks bright. India has come a long way since the early 2000s, and what stands out from the last ten years is that the economy has endured a global crisis and the worst drought in 30 years better than ever before. Growth is set to rise over the next year, on track with the higher growth trajectory of the past decade. Celebrations are not yet in order though; the double-digit growth that the economy is looking for will stay just out of reach, unless major structural changes are implemented.

Looking at the recent numbers, the picture for industry is not clear-cut thanks to volatile IIP data; while August growth has been pegged provisionally at 5.6%, the growth estimate for July was raised higher to 15.2% in the first revision. The main reason for this volatility is growth recorded in the capital goods segment, the other main driver for growth, consumer durables, stays on a steady path. Despite the ups and downs, it is a given that industrial growth is trending down through the year, numbers from the infrastructure sectors show further slow down in September. However, we do continue to expect a pick up in 2011-12, as capacity expansion plans materialise.

On the agricultural front, there is general good news with a few blips, the kharif harvest is expected to do well, higher than last year, but still lower than the previous two years, as floods in north India and drought in the eastern states have curbed record food grain output. The success story is of pulses, with record output expected, thanks to a special programme that has yielded results. While prices of pulses are expected to decline once the festive season is over, in the months ahead, much will also depend on the rabi crop, which forms the bulk of the pulses output. There are additional concerns that the higher MSP for pulses, up by around 20% for the rabi harvest, and inadequate storage and distribution systems can keep prices from sliding down dramatically.

Signals from the largest sector, the service sector, are very positive ? the IT industry has declared itself back on track, with significant order support from a booming financial services sector, the telecom sector continues to ring in more than 15 million subscriptions every month, air freight and passenger traffic has robust growth, railways and port cargo show positive growth, despite the restrictions on iron ore export etc. So in this fairly rosy picture, are we missing out on seeing any clouds on the horizon? For one, there is of course the omnipresent risk of the huge inflows that cannot be wished away. Also, while the RBI went ahead with another 25 basis point hike in the rates and indicated a possible end to tightening, the bank is keeping a close watch on upside risks to inflation.

All in all, despite the falling IIP trend this year, the economy is set to grow around the 8.5% mark and will rise to 9.0% in 2011-12. Unfortunately, the fallout of the lack of radical reforms that has shown up in high consumer inflation so far seems set to stay with us even in the year ahead; though consumer price inflation is trending down from its highs of 15%+ levels, it will stay in 8-9% levels in 2011-12.

To sum, growth is up but will be lower than we would like, inflation is falling but will be higher than we would like - for now, of course, all is well, but the point is we could, and we should, be doing so much better.