Prime Minister Manmohan Singh’s minority coalition government is under pressure to restore public and investor confidence, as concerns surrounding the slowing pace of growth have more recently been compounded by the rupee’s alarming depreciation. A general election is required no later than the second quarter of 2014, and the latest opinion polls signal an abrupt shift in popular attitudes away from the governing UPA, a bloc headed by Singh’s Indian National Congress.

Given the questionable reliability of India’s survey data, and the likelihood that post-election bargaining will be required to form a majority government, it is too early to write the UPA off completely. Indeed, smaller, regional parties, rather than the main opposition NDA bloc, have been the main beneficiaries of the UPA’s difficulties. As such, whether the UPA or the NDA forms the next government may well come down to which is best able to attract the most support from those smaller parties.

The tasks at hand for Singh are clear: improve on the government’s poor policy execution (among the worst for any Indian government), make good on a pre-election pledge to reduce poverty, and work with the Reserve Bank of India to shore up the sagging rupee.

The steps taken to date are far short of what investors are hoping for.

The Parliament has displayed surprising productivity of late, enabling the passage of several key reform bills. However, the process has featured enough of the characteristic delays and typical recriminations to suggest that a return to the normality of more disruptive proceedings might be just around the corner. Moreover, the steps taken to date are far short of what investors are hoping for, and populist spending measures look to increase fiscal strains that are threatening India’s investment-grade credit rating.

By intervening aggressively in the foreign-exchange market and providing sufficient dollars directly to the oil companies, the central bank has attempted to nail its sails to the mast and allay investor concerns. The rupee could well make up the ground lost this year in the second half of 2014, as election-related uncertainty dissipates.

That said, a sustained outflow of capital caused by a loss of confidence in emerging markets more generally is a possibility that could, in extremis, spark a balance of payments crisis, rocking the banks with loan-losses and echoing India’s last crisis in the early 1990s, when the country was forced to seek emergency assistance from the IMF. An event of that magnitude is not the most likely scenario, but should not be completely dismissed, and it would not be out of the question under such circumstances for authorities to consider imposing capital controls as a temporary measure.

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