Last October, when Finance Minister P Chidambaram delivered a lecture at Stanford University, he dealt at length on India's economic situation and the recent policy initiatives of the United Progressive Alliance government.

In the speech, Chidambaram underlined the main objective of the current phase of reforms -- to ensure high growth, in an inclusive manner that generates more employment. He highlighted the National Rural Employment Guarantee Act, which aims to provide one job per family for 100 days every year, as a key achievement of the UPA government.

Chidambaram also highlighted the stupendous growth in the Indian economy -- which has on average grown at a rate of more than 8.5 per cent from 2004 onwards, the year the UPA assumed power, making it one of the fastest-growing economies in the world and in the process exceeding the target set out in the UPA's national common minimum programme.

One of the six basic principles of the programme was to ensure that the economy grew at least 7-8 per cent per year in a sustained manner over a decade and more.

The finance minister's Stanford address also said that India's economic growth had been accompanied by a benign rate of inflation. That statement was made only six months back.

Perhaps the finance minister could not have then foreseen that this 'benign rate' would suddenly morph into a runaway spiral, putting into question the very ability of this coalition government to manage growth.

By January this year, the Reserve Bank of India said it was witnessing early warning signals emanating from rising inflation in an environment of high money and credit growth.

The causes are symptomatic with the UPA's failure to get going on the infrastructure front -- a key bottleneck as well as its inability to push agriculture growth, which slowed down from 6 per cent in 2005-06 to 2.7 per cent the year after. These factors coupled with escalating asset prices have raised dangers of the economy overheating.

It is this seemingly innocuous, but completely understandable consequence of high economic growth that has become the proverbial millstone around the UPA's neck as it completes three years in power. A massive effort to contain inflation has resulted -- itself fraught with consequences in the form of rising interest rates for consumers and industry, the threat of an economic hard landing and a decrease in overall competitiveness and productivity.

In the public eye, inflation has also overshadowed other key achievements and progress made by the UPA in the past three years. The two-year 'report to the people', unveiled last May, had waxed eloquent about major development initiatives -- the NREGA, the rural health mission, the urban renewal programme, the expanded universal education programme and mid-day meals.

The third report card, unveiled on Tuesday, dwelt on the even better performance in the country's economy than the NCMP draftsmen could have envisaged.

For 2006-07, GDP is estimated at 9.2 per cent, way beyond the projections. It also dwelt on the robust industrial production, with the year-on-year growth being led by a massive revival in manufacturing sector.

It also touched upon the rapid increase in the domestic savings rate, which as a percentage of GDP, increased from 31.1 per cent in 2004-05 to 32.4 per cent in 2005-06. The increase in the savings rate has been accompanied by the overall investment rate increasing by 2.3 percentage points of GDP to 33.8 per cent in 2005-06.

What this year's report card does not talk about are the clouds on the horizon. The battle against inflation, which began in earnest with the first of six interest rates hike in December 2006, has since assumed the proportions of an epic battle.

Four different sets of measures including monetary policy interventions, fiscal steps in the form of 11 different reductions and exemptions in Customs duties (including the reduction in the peak rate from 12.5 to 10 per cent in Budget 2007-08) and a reduction in retail fuel prices.

The government has taken other steps including the suspending futures trade in some commodities. All this has come at a cost -- for the exchequer and for the middle-class.

Too much of unfinished task

The UPA government has failed to push through key reforms in the financial services sector. Among the policy issues put on the backburner are lifting of the voting rights cap in the banking sector and raising the foreign direct investment ceiling in insurance.

The government took some initial steps for consolidation among public sector banks and moves were afoot to make a beginning by merging Bank of India and Union Bank of India. The government, however, got stuck subsequently in the stumbling blocks put up by the Left parties.

The finance ministry was even considering providing foreign banks a greater leeway in private sector by allowing them to acquire stakes in a phased manner. The government considered allowing foreign players to raise their equity stakes in Indian private sector banks in phases of 10 per cent.

The unfinished task has the potential of completely changing the face of Indian banking. These radical policy reforms are unlikely to happen in the remaining two years of the UPA government's term given the political compulsions it is operating in.

Another policy initiative facing a roadblock is the Pension Fund Regulatory and Development Authority Bill, which seeks to introduce a new pension system where the beneficiary would be making a defined contribution. The central government has already decided that all its employees who have joined after January 1, 2004 would be part of the new pension system.

Prices hurt where it pains the most

Prices of agricultural commodities saw a sharp rise in the three years of the UPA rule primarily due to stagnating production and rising demand. Commodities like pulses, wheat, milk and edible oils have seen a jump of 40-100 per cent over the period, thereby contributing to overall inflation.

The daily per capita availability of milk has increased from 233 grams in 2004-05 to 245 grams in 2006-07 but prices of milk and milk products have recently touched an all time high. The government was forced to ban export of milk powder but its price continues to rise.

Though an increase has been projected in wheat production (from 68.6 million tonne in 2004-05 to 73.7 million tonne in 2006-07), wheat procurement by the government has not been encouraging. Wheat procurement was 16.8 million tonne in 2004-05, which fell to 9.3 million tonne last year. In the current year, about 9.9 million tonne of wheat has been procured so far, significantly below the targeted 15 million tonne. After a gap of six years, the country was forced to import wheat last year and preparations are on to import wheat this year too.

Markets happy but small investors worry

The reign of the United Progressive Alliance began in May 2004 in the most inauspicious way, with the Sensitive Index of the Bombay Stock Exchange greeting it with an 800-point drop.

This was triggered by statements made by some Left leaders, even before the government was formed.

How the scenario has changed. Today, the Sensex is about 10,000 points above the May 2004 level. Growing consistently at 8 per cent or more, India's gross domestic product is among the world's fastest growing, and has instilled confidence among investors. Foreign investors have pumped in over $27 billion in Indian equities during the UPA's tenure.

Ironically, the UPA is reaping the rewards of the seeds of the economic growth planted by the previous government of the National Democratic Alliance. But it does deserve credit for keeping the India story alive.

However, the UPA has done little to bring in more retail or small investors except allowing the Securities & Exchange Board of India, the markets regulator, to function without interference from New Delhi.

A Bill to give more powers to Sebi has been pending with the government for almost two years. Traders say the primary market in general has been buoyant over the last three years but investors' predilection for short-term remains.

Social sector: Highlights and woes

If throwing money at the social sector is the index of performance, the UPA has surpassed itself in implementing the promises it made when it came to power.

Take education. Compared to 2001-02, financial outlays for the Sarva Shiksha Abhiyan increased fifteen-fold from Rs 665 crore (Rs 6.65 billion) and stood at Rs 10,671 crore (Rs 106.71 billion) in 2007-08.

The allocation for the Mid Day Meals programme stood at a staggering Rs 7,324 crore (Rs 73.24 billion) in 2007-08. An education cess levied paid for the Prarambhik Shiksha Kosh set up to spread literacy at primary levels.

This was consistent with the UPA promise that it would raise public spending on education to at least 6 per cent of the GDP with at least half this amount being spent on primary and secondary schools. That the UPA government will introduce a cess on all Central taxes to finance access to quality basic education was also a promise made in the Common Minimum Programme.

But what should cause concern to UPA managers is the efficacy of expenditure. According to the Ministry of Human Resources Development (2006), there are 1.34 crore (13.4 million) -- 6.9 per cent -- children between the ages of 6 and 13 years, who continue to stay out of the school system. The jury is still out on the Mid Day Meals Scheme -- the Planning Commission is still studying its impact.

The centerpiece of the CMP commitments on education -- the Right to Education Bill -- is still pending. The Centre sent it to the states, seeking a broader consensus. But educationists say the Centre is merely trying to evade its responsibility.

The most important initiative of the UPA government in the social sector is the National Rural Employment Guarantee Scheme (NREGS). It was launched in February 2006, and by December 2007, will have covered more than 1.4 crore (14 million) households in 200 districts of the country.

But the scheme becomes suspect instantly, because in its outcome budget, the Ministry of Rural Development, while claiming that 3.47 crore (34.7 million) job cards had been issued and employment provided to 1.51 crore (Rs 15.1 million) households, said that in some cases, the targets for providing employment had been exceeded.

With great fanfare, the government also launched a massive public-private partnership deal called Bharat Nirman that envisaged providing infrastructural amenities with the collaboration of the private sector. But in most cases, the government has fallen short of reaching targets. Till December 2006, drinking water was provided to 55,512 habitations as against the target of 73,120 habitations.

Power shortage plagues

While the performance of the Manmohan Singh government in the power sector has been dismal -- just about 50 per cent of the targeted 41,000 Mw was added in the 10th Plan period -- it can take credit for prying open the nuclear door for India.

Though there seem to be last minute hiccups in the India-US nuclear cooperation deal, which would give India access to US nuclear technology and fuel for the first time in 30 years, it clearly caps everything else that the government has managed in the energy sector.

There was the plan to set up the country's largest power plants -- the 4,000 Mw ultra mega power plants -- across nine cities in the country but only one at Mundra in Gujarat has managed to get off the ground so far. Critics say the government would have done better by focusing incentives on smaller-sized plants since "not many companies have the ability and willingness to invest Rs 16,000 crore (Rs 160 billion) or more required for each ultra mega project."

The government, however, gets some points for unlocking some of the coal resources of the country. It put in place a somewhat scientific criteria for allocation of coal blocks to the private sector for captive mining. This replaced an archaic first-come-first-serve basis of allocation and absence of any norms for deallocation. In fact, production from captive blocks is projected at 29 million tonnes by March 2008, which would be about five times the production when this government came into power.