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The Indian stock market, up 83 per cent since March, has high hopes of Manmohan Singh, the first prime minister since Jawaharlal Nehru to be re-elected after serving a full five-year term. His big test comes on Monday, with a budget that will outline how the government interprets the mandate it won in May. Expectations are running ahead of themselves. At best, it will show that the government is keen to push ahead with reforms, after wasting several years kow-towing to the once indispensable left bloc, thankfully now superfluous to requirements.

But the most keenly anticipated reforms − such as the liberalisation of foreign direct investment in financial services and education – are no done deal. This reflects the reality that blaming the left for policy inaction often suited a Congress party leadership that was itself ambivalent about liberalisation. Today that excuse is gone. Mr Singh has no option but to rekindle his reputation as a reformer. True, India will be the fastest growing big economy in the world next year, according to the World Bank, with output expanding by 8 per cent, compared to 7.5 per cent for China. But with a fiscal deficit estimated by Morgan Stanley at 12.6 per cent in the year to March 2009 and public debt, including off-budget liabilities of 85 per cent of gross domestic product, the public finances are on an unsustainable path.

Investors will be disappointed if Monday’s budget does not reflect the urgency of the fiscal consolidation. Proceeds from disinvestment, the polite term for partial privatisations, should plug some of the gap. These should also liberate resources for much-needed investment in infrastructure, especially in the power sector and roads. But much will depend on market conditions and the government’s determination to take on unions and vested interests. State-controlled companies are a rich source of patronage and power for politicians and civil servants. That is never going to change overnight.

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