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Business Commentary/ Jay Dubashi

Time for requiem for Indian economy

You can take economics out of politics, but you cannot take politics out of economics. And right now, the way things are going, it is all politics and very little economics.

On April 5, the stock market crashed by five per cent or almost 170 points, making mincemeat of all those armchair pundits who were predicting a climb to 4,000 points by mid-April. In fact, there were some who were mentioning a figure of 5,000 by June. But the political situation in the country and the threat of the fall of the present government has suddenly changed the picture.

On April 6, the rupee slumped by 30 paise from Rs 42.25 to the dollar to Rs 42.55. At one point, the rupee had gone down to Rs 42.75, but it recovered before the markets closed. So did the stock market on the same day, when the Sensex gained 50 points.

But these numbers mean nothing. The markets are shaky because the government in Delhi is shaky. It can fall any time, though not before April 15, when the Lok Sabha meets again after recess. It is going to be a stormy session, though a great deal depends on how the government side handles the whole thing, but at the moment, going by reports, prospects look none too rosy for it.

If the Vajpayee government goes and is replaced by an interim government, as reports go, then the situation will be even worse than it is today. The present government is lame-duck enough; the interim government will be a time-pass government, holding the fort until fresh elections, which could be anytime towards the end of the year. This is going to be a major disaster.

Already there are signs that the economy has virtually come to a stop. Last year (ended March 1999) was a terrible year, with most if not all indicators pointing the wrong way. Industrial growth in January was a measly 2.1 per cent on the previous January and it has probably fared worse in the subsequent two months. Industrial growth during the whole year may not be higher than about three per cent, the lowest since 1991.

Export growth is virtually zero, though Commerce Minister Ramakrishna Hegde thinks that it is improving. The growth rate was less than one per cent until February. The only sector to have improved its position is the infotech sector, that is, software exports, mainly because of contract work relating to Y2K. All other sectors have done poorly.

Foreign direct investment is down to 40 per cent of last year. Even NRIs, who seem to be more sensitive to happenings in India than foreigners, have brought in very little investment funds. Foreign investment banks are actually leaving India, and so are many retail banks. Reason? There is not enough business in India to justify their presence.

Stability was the only thing going for the Vajpayee government, but that plus factor is now no more. The government did take a number of important decisions, but somehow it was not able to build on that. There was also a credibility gap.

For a party that was supposed to swear by swadeshi, the government went all out to convince foreign investors that it was not really so. At its recent meeting in Goa, the Bharatiya Janata Party went out of its way to dump the swadeshi, slogan, but it left most people confused.

The investors, foreign as well as Indian, are perhaps waiting for the next government, in which the Congress party is expected to play an important role. Whether it will do so is anybody's guess, but the government will probably carry more credibility with investors than the Vajpayee government.

The Vajpayee government is still very much in place. It has decided to put up a strong fight in Parliament and is already busy horse-trading. The situation is so fluid that no one can say what might happen next week when Parliament meets. But the damage is done, whether the government survives or not, and that too at a time when the economy was badly in need of a boost, political as well as economic.

Jay Dubashi

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