The Mid-Year Economic Review for 2015-16 tabled in Parliament last week gives a mixed picture of the economy. It says macroeconomic stability has improved considerably and so the economy is now in a better position to absorb adverse external shocks, such as the recent US Fed hike. On the negative side, the improvement in growth has been uneven. Private consumption and public investment played a key role in pushing growth, but private sector investment and exports have remained dull. In other words, only two out of four main economic cylinders are firing, thereby offering a tough challenge to the economy.

Given the dull investment scenario, the report urges the government to push public investment and reassess the fiscal consolidation target. It is true that the Centre should not obsess over fiscal deficit target, but I think measures like widening of subsidy reforms, better planning on divestment and strategic sale of government shares in PSUs can go a long way in mobilizing resources for public investment. The report also raises concern over inflation and borrowing costs. I think it is not the right time to lower the target on inflation of which we have gained some control only recently, but at the same time finding a solution to the problem of high borrowing costs is a must to help industrial recovery. Also, the government's focus, as pointed out by the report, should be on supply side reforms to revive private investment.

On exports, which have declined for 12 straight months – much worse than the decline during the global slowdown of 2008-09 – the report expects some improvement next year. It says, "We find that this proxy for India's export demand declined from 3.0 percent in 2014 to 2.8 percent in 2015, which is consistent with the decline in India's non-oil exports in 2015. The data indicate that this demand will rise back to 3.0 percent next year, implying that the adverse export shock suffered this year could be reversed next year." The decline is attributed to decrease in global demand, which is true to a great extent, but our policy makers should not miss the point that such a situation demands enhanced support to the sector.

There is no denial of the fact that the economy has held on its own amid difficult challenges. Today, inflation has moderated, CAD is at a comfortable level, forex reserves position is robust, the rupee is stable, and so on. Also, the Centre is doing a lot to push reforms despite facing strong political resistance. But still it seems growth is picking up at a slower pace than expected. A recent study shows that only 50 percent of the economy is improving, and that even mainly due to softer oil prices, and not much because of government action. The economic review looks like reflecting similar challenges.

I invite your opinions.