New Delhi: Combating the economic slowdown and arresting the rupee's fall will remain the main priorities for the government and the Reserve Bank in the New Year, though inflation, which remained a major problem throughout 2011, may cease to be an important issue in the months ahead.

As the economic woes, driven mainly by global factors, spill over to 2012, the government will also have to deal with the spectre of policy paralysis by promoting economic reforms and boosting the investor sentiment.

Although 2011 began on a positive note, with the economy recording a growth of 7.8 percent in the quarter ending March, 2011, and the Economic Survey (February, 2011) projecting an acceleration in growth to about 9 percent in 2011-12, the euphoria was short-lived.

  The growth rate slipped to 7.7 percent in the quarter ending June, 2011, and 6.9 percent during July-September from 8.8 percent and 8.4 percent, respectively, in the corresponding periods last fiscal. The figures for the October-December quarter are not yet out, but indications are that they would be no better.

Worried over slowing growth, a group of industry leaders, including HDFC Chairman Deepak Parekh, wrote open letters to the government expressing concern over a "policy paralysis"
and underlined the need for firm action to deal with the situation.

Their repeated outbursts, however, evoked a sharp reaction from Prime Minister Manmohan Singh, who blamed industry head honchos for spreading despondency by criticizing the government.

"I must confess that it is a little disappointing to sometimes hear negative comments emanating from our business leadership or be told that the government's policies are causing a slowdown and pessimism in the industrial sector.

Such comments have added to uncertainty and have emboldened those who have no stake in our economic growth," Singh had said.

However, the fact of the matter was that both the Finance Ministry and RBI lowered the growth projection for the current fiscal to around 7.5 percent from 8.5 percent in 2010-11.

While the RBI had earlier projected a growth rate of 8 percent, the Finance Ministry in its Economic Survey had pegged growth at around 9 percent.

Industrial growth, as measured by the Index of Industrial Production (IIP), turned negative in October, experiencing a decline of over 5 percent. These signals do not augur well for economic growth in the coming months.

The Finance Ministry had attributed the slowdown to "global factors like the slowdown in the world economy, exacerbation of the euro zone crisis, hardening of crude oil prices in the international market, as well as domestic factors such as the decision to battle inflation by tightening monetary policy and cutting back fiscal stimulus".

With regard to the global factors, the sovereign debt crisis in euro zone countries continues to pose a threat to the global recovery, which has been described by several experts as being in a fragile state. Problems are still there in countries like Greece, Portugal and Spain.

Despite the efforts of the G-20 -- a club of rich and poor nations -- to contain the crisis, it has spilt over into 2012 and there will be no respite for global leaders grappling to find a workable solution to the sovereign debt problems of euro zone nations.

The danger posed by the global crisis is significant, as highly indebted governments do not have sufficient resources to fund another bailout. They will have to focus on those confidence-building steps that do not involve the outflow of funds from government treasuries.

High crude and commodity prices in the international market also had a bearing on inflation, growth and the fiscal deficit.

Crude oil prices in the global market, which stood at about USD 89 a barrel in February, hardened in the following months to average around USD 106-107. The crude prices remained stubbornly high despite the slowdown in the global economy.

For India, which depends on imported crude to meet 80 percent of its requirement, this was not a good sign. The Oil Marketing Companies (OMCs) and the government had to raise retail prices of petroleum products in the domestic market.

OMCs increased petrol prices several times during the year, though sometimes it was lowered.

In addition to causing hardship to the common man and fueling inflation, the rising prices of crude oil also impacted the fiscal deficit. Finance Minister Pranab Mukherjee recently told Parliament that the central government's subsidy bill for 2011-12 will rise by over Rs 1 lakh crore above the Rs 1.34 lakh crore provided for major subsidies like fertiliser, food and petroleum products in the Budget.

An increased subsidy bill will have implications on the fiscal deficit, which is high in comparison to the previous financial year. The government had planned to bring down the fiscal deficit to 4.6 percent of the GDP during 2011-12 from 4.7 percent a year ago, but the task seems impossible now.

A related issue that kept the government on its toes throughout 2011 was inflation. While food inflation has moderated on the back of declining vegetable prices, headline inflation continues to be a matter of concern.

Food inflation was as high as 16-17 percent in January and remained at elevated levels throughout the year. However, much to the comfort of the people as well as the government, it declined sharply to less than 2 percent in December, mainly on account of a moderation in prices of essential food items like potatoes, onions and other agriculture produce.