Will history repeat itself? We shall see.

There is a gush of good news in India. The Sensex, index of the Bombay Stock Exchange, rose above 30,000 for the first time ever. Brokers are jubilant. "Global growth outlook has improved, driving the risk appetite for investors. In India, cost of funds has dropped. India's risk premium has come down, because the reforms process may go on after the government won the Uttar Pradesh elections," said Gopal Agrawal. Foreign investors have poured $6 billion, or Rs 384 billion, into India. The rupee has strengthened against the dollar, falling below the 64 mark on one occasion. The GDP grew at a healthy 7% in the December quarter, despite the ban on high denomination notes on 8 November. The Asian Development Bank predicts a growth rate of 7.4% this year. Indian exports grew by 17.5% in March, a huge improvement over the 2.5% growth in the previous 11 months. Will the strong rupee be a drag on export growth by making our goods more expensive? No, said Manas Chakravarty, giving 10 reasons why it does not matter. All Asian currencies have appreciated against the dollar, the rupee has appreciated the most. Foreign investors are lured by fundamentals of our economy and by the increasing returns as the rupee gets stronger. The Reserve Bank is not worried because the current account deficit is low at 1.5% and there is plenty of liquidity in the market, so it does not want to add to that by buying dollars. The IMF expects global trade to grow by 3.8% this year so exports should grow. A Goldilocks economy? We have been here in 2007. That year the GDP was growing at around 9.5%, the rupee had fallen to around 40 to the dollar, and the Sensex had soared to over 20,000, an increase of almost 50% over the previous year. Congress ministers were strutting around at the World Economic Forum meeting at Davos in Switzerland. But a shadow was looming over the economy. It was consumer inflation, which was going to ignite to double digits in succeeding years and bury the Congress in 2014. Retail inflation increased to 3.81% in March, still way below the RBI comfort level of 4%, but growing since hitting a low of 3.17% in January. The Index of Industrial Production fell in February which is surprise if both GDP and exports are growing at a fast clip. The Congress waived bank loans to farmers, costing Rs 600 billion, in 2008. That probably helped the Congress to increase its seat tally in elections in 2009. The BJP just won election in UP by spending Rs 307 billion on farmers' loan waiver. Already farmers in Maharashtra are refusing to repay their loans, which is only fair. If this becomes a trend it could increase fiscal deficit by 2% of the GDP, said Arvind Subramanian. Budget deficit increased to 7.8% in 2009 when the Congress was re-elected. How to pay for it? By imposing a near 200% tax on petrol. We have seen it all before.