Private investment is still sluggish, as is bank lending. How quickly the insolvency problem works out is the key question here.
The government is likely to face tough choices in 2018. First, as made clear by Gujarat's farmers, agriculture will need serious attention from the BJP-ruled Centre, especially with the party hoping to win most of the eight states that go to polls in 2018.
But should farmers get sops like loan waivers and very high minimum support prices or will they be happy if the government's targeted schemes on supplying cooking gas and electricity work out? A tough question for the BJP, and February's budget will give the first clue on the answer.
Second, the government's challenge on growth. Private investment is still sluggish, as is bank lending. How quickly the insolvency problem works out is the key question here.
Equally crucial: what is the elbowroom on ramping up public capital expenditure? Hard choices have to be made between fiscal discipline and giving a sarkari push to the economy, on whether a cut in corporate tax rates is justified as a means to enthuse private capital.
For the RBI, the inflation-versus-growth question will become sharper as prices stay up, growth remains modest and the government gets increasingly antsy about the absence of interest rate cuts. Again, the first couple of months of 2018 will give us a clue.
Third, Pakistan: the eternal dilemma for Indian governments. Narendra Modi has tried being nice and tried being tough but an increasingly dysfunctional Pakistan seems impervious to any messaging. As the general election draws near, the Centre will need to show there is a clear line on the troublesome neighbour. What that line will be — more cross border strikes, even bigger military responses, another offer to talk? — will be among 2018's most fascinating questions.
Fourth, high oil prices. If Donald Trump or some other equally unpredictable force does something that spooks oil markets and prices rise steeply next year, a lot of calculations for a major oil importer like India will need to be revised. Keep an eye on Brent crude prices to get a sense of how 2018 will shape up.
As we said, 2018 will be the year of tough choices.
