Delhi’s IGI airport and Mumbai’s art-filled T2 terminal teem with foreign investment bankers. Most are cautiously optimistic about the new Indian government’s economic policies. But can the Modi government deliver on its poll promises?

The UPA government has left the treasury nearly empty. Infrastructure projects worth over Rs. 10 lakh crore are in limbo. The Prime Minister’s office (PMO) is a work-in-progress. When done, the Modi government will operate through four layers: one, a strong PMO; two, a tightly run cabinet; three, empowered bureaucrats; and four, technocratic advisors with specific domain knowledge.

The top priorities: getting the economy back on track, taming inflation and creating jobs.

Let’s start with specific economic targets and how the government can achieve them.

Services contribute 59% to India’s overall GDP. Agriculture has a small 14% share. Industry makes up the balance 27%. To achieve annual GDP growth of 10%, the primary focus must be on boosting services.

Services include IT, tourism, exports, retail, banking and finance. The Prime Minister’s target would be to ensure 12% growth in services by 2015-16. With services contributing nearly 60% to the GDP pie, annual growth on account of services would thus be 12% x 60% = 7.2%.

Now build on that base. Industry accounts for 27% of overall GDP. Growth can be accelerated with fast environmental clearances of languishing projects, investment in infrastructure and the introduction of advanced technology. Higher productivity and labour law reform can give added impetus to manufacturing.

The growth target for industry, which includes manufacturing, mining and power generation, could be 8%, a level reached consistently in 2004-10. With a share in overall GDP of 27% (of which manufacturing comprises 14%), industry would contribute 8% x 27% = 2.1% to annual GDP growth.

That leaves agriculture. The contribution of agriculture to the overall GDP pie is only 14% but farm incomes have a disproportionate knock-on effect on consumption. This can affect industry, manufacturing and services.

Agri reform is high on the PM’s agenda and India is now relatively drought-proof. This year’s monsoon is likely to be severely deficient but irrigation may suffer only slightly due to most reservoirs around the country possessing adequate water stocks. That situation could worsen though if the monsoon is delayed beyond early-July since reservoirs are depleting rapidly.

While agriculture growth in 2014-15 is likely to be 2% or lower due to scanty rains, the target for 2015-16 should be an achievable growth rate of 5%. Since agriculture accounts for only 14% of overall GDP, its contribution would therefore be 5% x 14% = 0.70%.

This would take targeted GDP growth in 2015-16 to 10% (services 7.2% + industry 2.1% + agriculture 0.70%).

However, this growth level is sustainable in the long term only if three key conditions are met: One, overhauling infrastructure. Two, enhancing technology. Three, boosting productivity.

All of these need deeper reforms cutting across institutions, education, labour, tax and healthcare. Without a holistic, integrated policy, GDP growth will remain hostage to extraneous turbulence, both global and domestic.

India’s fiscal health has been ruined by 10 years of UPA profligacy and wasteful, leaky doles. The trade deficit of $147.60 billion in 2013-14 is dwarfed by an oil import bill of $180 billion. India imports 81% of its crude oil and 25% of its natural gas.

An immediate priority for the Modi government must be to reinvigorate the New Exploration Licensing Policy (NELP), pursue shale gas exploration as the US has done (though shale deposits and laws governing “fracking” for shale gas are less promising in India than in the US) and aim to reduce oil imports to 60%, a level achieved in the 1980s when Bombay High was at its production peak.

The trade deficit would then fall to well below $100 billion. By 2019, if GDP growth averages 9-10%, the economy would have grown by over 50% to around $3 trillion ($7.5 trillion by purchasing power parity – PPP). The trade deficit would then be just over 3% of GDP compared to nearly 8% today.

The fiscal deficit has already stabilized at around 4.5% of GDP. With higher revenue through the Goods and Services Tax (GST) next year and judicious cuts in non-plan expenditure, it could fall further to a targeted 3.5% on a rising GDP denominator.

FDI/FII funds are pouring in and the current account deficit (CAD) of $32.40 billion in 2013-14 could actually turn positive in 2014-15, boosting India’s forex reserves. FDI inflows in calendar 2014 (up to June 14) have been a record $41.59 billion, according to the RBI. FDI in manufacturing, technology and infrastructure builds long-term assets in India under sovereign control and must be encouraged.

Inflation meanwhile remains a serious concern. It was tackled during most of the UPA government’s tenure by the RBI squeezing demand through a tight monetary policy regime. That prescription was wrong.

The RBI should ease monetary policy and allow the government to use a supply-side strategy to dampen inflation. Expanding the supply of goods and services through increased productivity and better infrastructure rather than stifling demand through high interest rates is the shift in policy needed to control prices and simultaneously spur economic growth.

The opportunities India affords are unique as the plane-loads of eager foreign investment bankers testify. The policies articulated in next fortnight’s Budget – and their execution – will determine how rapidly India lives up to its true potential, shackled for years by poor economics and poorer politics.