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So what will the new year be like for the economy

As the tumultuous year draws to a close, there is an air of expectancy on what the new year will be like for the Indian economy. The focus now is on terrorism and cross-border terrorism, which the government is determined to eradicate. It's a now-or-never situation.

Whether or not the confrontation will culminate into a war hinges on how quickly and favorably the US will react to India's concerns. The September 11 terrorist attack on New York's World Trade Center actually helped Indian leaders. New Delhi thought the US would kill the proverbial snake (remember the crow-and-necklace story?), retrieve the rajkumari's (princess's) necklace and in the process eliminate the danger stalking the crow's eggs atop the tree.

Priorities for President George Bush were different. After the 9/11 events, yes, Bush focussed on retrieving the necklace (Afghanistan) and win American accolades. But the snake is still at large causing major concern to New Delhi.

President Bush's agenda depends on his perception of the Indian stance and on the convergence of the two countries' goals. The next few days are crucial. If Pakistan President General Musharraf doesn't respond to US pressure to stop cross-border terrorism and de-escalate tension in the region, that is a clear signal of his readiness to go to war with India.

In which case, will strikes on terrorist camps across the LOC lead to a wider conflagration? They may not, if Pakistan's objectives are to bring the Kashmir issue to the forefront and involve third-party intervention.

Whether it is a full-scale war or a limited battle, the cost would be very high. The new year for India would be the worst in 30 years.

Economic development would be given a go-by and new imposts like tax surcharges, a la Bangladesh war levies, cannot be ruled out. That is a worst scenario.

Notwithstanding a war-like situation between the two nuclear powers, the general feeling is that the new year will not be worse than the one exiting. For, the worst has happened already.

Like the December 13 terrorist attack on Parliament unleashing simultaneous diplomatic barrage and military build-up. The year began with a massive earthquake shattering the home and hearth of thousands in Kutch.

Then the centrestage was taken by the information technology meltdown worldwide, triggering what is now accepted as recession in the US, which has been the engine for world economic growth.

Though, at the outset, New Delhi brushed aside fears of this recession adversely impacting India, it is now clear that exports of even traditionally manufactured products, especially textiles and leather products, have dropped. Growth of IT exports too has slowed down.

Macro indicators are a mixed bag. The rupee against the US dollar is down from Rs.46.58 to Rs.48.27, the BSE Sensex plunged to 3,330 from 4326 in January. But foodgrain stocks are up to 59 million tonnes from 46.5 million tonnes and foreign exchange reserves rose to $48.0l billion from $36.3 billion. The wholesale price index plunged to 2.4 per cent from 8.7 per cent.

These statistics don't reflect the nation's mood correctly. Uncertainty has gripped the urban working class as labour and economic reforms start biting and redundancies increase. Falling interest rates unsettled savers, especial senior citizens, who have come to depend on interest earnings for living.

The high foreign reserves are a reflection of recession as industry lowered raw material imports as demand for goods tapers off. Not much private investment is seen.

Entrepreneurs are turning into traders to see if they can make money by selling imported goods. They no longer innovate to cut costs. Trade unions are almost turning anti-national as they refuse to co-operate in productivity enhancement and check imports.

Special export zones are yet to take off. The rural discontent is up and is still rising. Suicides have become common in the countryside.

Farmers haven't been able to sell their marketable surpluses because of the WTO factor and depressed prices. No mechanism is in place for the farmer to face the flood of subsidised commodity imports after the quantitative restrictions on imports are removed.

Will the overall GDP growth this fiscal fall below 5 per cent? The Bugdet projected 6.5 per cent increase. The sights were progressively lowered to 6 per cent and then on to 5.5 per cent. Now it is hovering around 5 per cent.

If the growth rate falls below 5 per cent, it will be the lowest since 1991-92. Union Finance Minister Yashwant Sinha will have to hold the can, though the Vajpayee government as a whole is responsible for what is turning out to be an economic debacle.

The saving grace is agricultural output, the key contributor to GDP. Prima facie, agriculture performed well this year. A closer look shows it's jugglery of figures. Production in the previous year was stagnant and on a lower base, growth this year looks impressive.

The hyped private investment in infrastructure, especially power and roads, did not materialise. The feud between the Maharashtra government and Enron-led Dabhol power company scared away new independent power producers. Toll fixing problems and fears over viability stalled road projects. In turn, core industries like steel and cement were hit.

The failure is on all fronts -- government, industry and labour. The government should take all the flak because it was seldom proactive. Seized as it was with law and order problems, the less-stable BJP-led government took the facile option: procrastination. Economic issues took the back seat.

The Centre's fiscal deficit, as Sinha himself admits, will overshoot the budgeted target of 4.7 per cent of GDP. By saying that he is more worried over slippages in revenue collections, Sinha is expressing his helplessness in containing expenditure both at central and state levels.

Finance ministry pundits should had anticipated a sharper drop in customs revenues. What they could not hazard -- or go public if they apprehended - was the fall in excise collections. The saving grace was some buoyancy in direct taxes. There too, the personal income-tax saved the situation.

The outlook for the coming year depends on three major factors -- external economic conditions, policy initiatives and political stability. US economic revival is expected around June next year. Much depends on how proactive the government will be in policy-making.

The finance minister himself has outlined his action programme. Like increasing outlays on infrastructure development, expanding the scope of services sector to make it a key revenue contributor to the exchequer and focusing more on direct taxes than on excise duties.

Not all the potential income-tax payers are filing returns now. Sinha should resist pressures to drop telephone connection as one-out-of-six criteria to file income-tax returns. Instead, he should take a cue from its success so far and expand the list.

Potential areas of expansion are the acquisition of high-priced white goods. Can an ordinary citizen afford to an air-conditioner, a 21-inch colour TV, a washing machine or a high-priced refrigerator without falling into the tax bracket? It should be one out of nine, not one out of six.

Judgement on a possible upturn in Indian economy next year would have to be suspended till February.

Not because the Union Budget will be declared then, but because by then the border situation should clear up and the stability of Vajpayee government would be known.

The Uttar Pradesh elections will decide the fate of National Democratic Alliance. If BJP emerges unscathed in the state, the NDA could press ahead with stronger economic agenda at the Centre. Otherwise, status quo will prevail. The economy will just prod along. It has hit the nadir already.

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