From the Editor: December 7, 2014

Six months into Prime Minister Narendra Modi's term, what does the economy look like? Most experts are unanimous that things are looking far better than they did any time in the year before he took office. There are small, but many, encouraging indicators. Inflation has been falling steadily. The current account deficit is also coming down. Global funds are again flowing into the country - into equities, debt, and also projects. Recent factory output data suggests it is improving, albeit slowly. Hiring activity is picking up. The last quarter's GDP growth numbers were the best in nine quarters. Optimism and hope about the future are growing, as various consumer and business confidence surveys show. The OECD, IMF and World Bank have all projected that the GDP growth of the country will pick up pace quite sharply.

Almost everyone agrees that Modi is easily the most energetic occupant of the prime minister's post till date. The pace he sets is scorching. Since he has come to power, he has unleashed a flurry of programmes and policy changes, all meant to bring in more investment and make the business environment easier. He has travelled widely, wooing businessmen and extracting promises of investment from corporate titans across the globe. If the previous prime minister was accused of policy paralysis, the current incumbent revels in announcing one - or more - policy initiative a day. What is more, he expects his ministers and bureaucrats to keep pace with him.

Therefore, does it follow that Modi and his government have turned around the economy that was left in the doldrums by his predecessor? Well, the answer is both yes and no.

Much of the macroeconomic indicators that have improved cannot be attributed to any policy decision he has taken so far. Some external factors have played a big role in the economy looking better. The global oil glut and the resultant slump in prices - from the $110 a barrel at the beginning of the year to below $80 now - has lent a huge helping hand. The oil price drop has helped reduce inflation and narrow the current account deficit. A sharp drop in the prices of a range of metals and minerals has also made raw materials cheaper and made things look up for several Indian businesses.

On the other hand, it is also true that the programmes Modi has initiated and the policy reforms his government has embarked on will have a long-term impact - if he can carry them through. The Make in India programme and the labour reforms that have been announced could revive manufacturing. Perhaps the goal of making manufacturing 25 per cent of India's GDP is too ambitious, given that it currently accounts for around 15 per cent of the GDP. But any improvement in manufacturing will not only help in bringing in investment but also create thousands of jobs - which is what India needs desperately. Other reforms - like coal block auctions - will improve transparency, and improve investor-sentiment while giving a boost to the power sector.

Many of the steps the Modi government has taken will not show up in any economic indicator immediately. But if they reach their logical conclusion, they should give a big boost to the Indian economy 18 to 24 months down the line. The eight per cent-plus GDP growth will not be achieved next year - but it is entirely possible two years from now.

To a certain extent, the GDP growth graph in the Modi government's tenure could look quite similar to that of the first NDA government led by Atal Behari Vajpayee. The Vajpayee government did not inherit an economy in any great shape, but it systematically announced reforms and policies that built the foundation for high growth. It was only after the third and fourth years of that government that the GDP growth picked up pace and crossed the eight per cent mark. It might be the same story with this government.