The mid-year review of the Indian economy for 2005-2006 presents the economic scenario with cautious optimism. The return to buoyant performance of the manufacturing sector, the continuing buoyancy of the services sector, the sharp increase in the savings rate and the creditable performance of exports present an optimistic picture of the Indian economy. Despite the severe fiscal imbalance, sharply increasing oil prices and a poor political climate for reforms, the economy has registered a growth of over 8 per cent in the first half of the current year.The high performance of the economy consecutively for three years despite several constraints has given the impression that the economy has reached a higher growth trajectory. Such an assessment, however, would be premature and the review highlights several risks which have dragged the economy such as the continuing fiscal imbalance, infrastructure bottlenecks, perverse incentives and governance problems. Nevertheless, achieving 8 per cent growth during the Eleventh Plan is within the realm of feasibility, but that is possible only if the pace of reforms is accelerated. Restoration of fiscal balance, improving infrastructure, addressing labour laws, small scale industry dereservation, improving the efficiency of the financial sector, creating an enabling environment for investment and productivity increase in agriculture and addressing the problems of lagging regions are some of the measures needed for sustained high growth.About the AuthorDr. M. Govinda Rao is the Director, National Institute of Public Finance and Policy, New Delhi, India. He is also a Member, Economic Advisory Council to the Prime Minister. His past positions include Director, Institute for Social and Economic Change, Bangalore (1998-2002) and Fellow, Research School of Pacific and Asian Studies, Australian National University, Australia (1995-98). Dr Govinda Rao has a number of additional advisory roles. These include, Member, International Advisory Panel on Governance, UNDP Regional Office, Chairman. Chairman, Expert Group on Taxation of Services (2000-01); Chairman, Technical Experts Committee on VAT. He is also a Member of the Taxation Policy Group in the Initiative for Policy Dialogue (led by Prof. Joseph Stiglitz). Dr Rao's research interests include public finance and fiscal policy, fiscal federalism and state and local finance. He has published technical articles extensively in a number of reputed journals besides 12 books and monographs on various aspects of Public Finance. His recent books include, Political Economy of Federalism in India, Oxford University Press, 2005, Sustainable Fiscal Policy for India: An International Perspective (edited with Peter Heller), Oxford University Press, (2005) and Poverty, Development and Fiscal Policy, Oxford University Press, 2002 (Paperback, 2004).