The future growth driver financial sector reforms continued to be stalled by the UPA's Left allies, who seemed to be in no mood to budge. Meanwhile, government coffers continued to swell due to tax collections, particularly from the direct tax, resulting in maintaining of fiscal discipline despite larger expenditure on social welfare programmes.

However, official auditor CAG has a word of caution on this front, asking the Centre to make more efforts to meet its target of eliminating revenue deficit by March 31, 2009 and reform its finances to use resources more optimally.

Tne government collected Rs 2 lakh crore from direct taxes till December 20 this fiscal and over Rs 1,48,000 crore (Rs 1480 billion) from indirect taxes.

Equity market, which many see as the barometer of the economy, continued to be bullish rising from 13,942.24 points on January 2 to 20,192.52 points as on December 26.

The surge was at times halted by sudden crash like the one that took place on October 17, when the Sensex registered an intra-day fall of 1,700 points on market regulator Sebi's decision on Participatory Notes. There were other relatively smaller dents on speculations over snap polls and sub-prime crisis overseas.

But then, the market regulator also took major steps to deepen the market like allowing institutions to short sell, coming out with more derivative products and permitting companies to give discount to retail investors.

Tight monetary policy by RBI with the help of instruments like cash reserve ratio, repo and reverse repo rates, and fiscal concessions from the government brought down inflation from over 6 per cent till mid of May this fiscal to 3.65 per cent by December 8.

But the tightening of money supply and the resultant rise in interest rates moderated economic growth rate to 8.9 per cent in the third quarter of the current calendar year, against 10.2 per cent in the same period of 2006.

Though a host of factors affected the moderation, tight monetary policy had its own role to apply brake on the growth process.

In the first quarter of 2007, the economy moved at the pace of 9.1 per cent and in the second quarter by 9.3 per cent, with the result that GDP growth rate worked out to be higher than 9 per cent for the first nine months of the current year.

However, the dose of high growth rate had its own side effects. The resultant rise in confidence in Indian economy and huge inflow of funds into the capital markets and directly into different sectors of the economy pushed rupee up against the US dollar, hitting hard exports and forcing the government to announce three packages of around Rs 5,200 crore (Rs 52 billion).

Indian currency rose by around 15 per cent against the dollar by October in a year, prompting the government to announce curbs on External Commercial Borrowings. Many attributed the curbs on Participatory Notes by Sebi to abundant capital inflows.

All said and done, it cannot be denied that the economy did move at a blistering pace this year as well. But many economists pointed out that India has to improve its infrastructure like roads, power, ports, to sustain this growth.

And in the words of Finance Minister P Chidambaram, financial services would be the next engine of growth like IT and telecom were in the 1990s and now.

While the government has taken initiatives to address infrastructure bottlenecks like viability gap funding, public-private partnership and setting up of a revolving fund to help states to prepare projects, major financial reforms are lying in the backburner due to stiff resistance of the Left.

These reforms relate to hiking FDI limit from 26 per cent to 49 per cent in insurance sector, giving statutory powers to interim pension regulator and hiking voting rights of foreign players in private banks.

"Financial sector reforms are lagging behind. We need to push through financial sector reforms in banking, insurance and pension But I still think that we have 16 months and we might be able to make some progress," Chidambaram said.

Despite brave front put by the Finance Minister, it does not seem likely that the Left would budge and give political space that Chidambaram had asked for to carry out financial sector reforms, particularly when the year 2008 would surely witness elections to around 10 assemblies, if not general election.