Opinion Trouble in the neighbourhood

I cannot resist crowing. Last September,I predicted on a TV programme that the GDP growth rate would be nearer five per cent than the seven plus the government was forecasting.

March 1, 2009 12:58 AM IST First published on: Mar 1, 2009 at 12:58 AM IST

I cannot resist crowing. Last September,I predicted on a TV programme that the GDP growth rate would be nearer five per cent than the seven plus the government was forecasting. Now we know that the last quarter of 2008 came in at 5.3 per cent. Economists are so often berated for getting things wrong that I may as well savour a rare correct prediction.

That said,the prospect for the current quarter is still difficult to predict. There have been two stimulus packages plus an interim budget which was flat and then a last minute afterthought of a stimulus package last week. The government is suddenly confused and was no doubt upset by the criticism it received about its budget. But since the elections are just two months away,nothing much can be done now since lags are sufficiently long in such matters. Whatever is done in February has an impact by June if you are lucky.

It seems that demand is staying up in rural areas and small towns. The National Rural Employment Guarantee Act (NREGA) may have helped poorer households in its own small way. The adverse impact of the global recession is on the metros and larger cities. It is more on exports and any activity dependent on foreign money flows. Policy has been hesitant and it will be only after the election that the real upward boost will occur.

Let me then say that the first quarter of 2009 will come in weak,but above the miserable 5.3 per cent,say between 6 and 6.5 per cent. Inflation is down below 3.5 per cent and will no doubt keep low around that level. Of course,the official number does not reflect the prices consumers pay in daily shopping. This is because all sorts of industrial products enter the index which people dont buy every day or even every week. This is the reason why a sudden shortage of a necessity such as onions can throw all predictions out.

Yet it may very well turn out that come April/May,the voters are less bothered about the economy and more about events in Indias immediate neighbourhood. Sri Lanka has already caused ruckus in Tamil Nadu where the Karunanidhi government is caught in a dilemma. It would like to be more supportive of the LTTE but that is hardly wise given Indias stance on terrorism. So it has tried to urge the Centre to be more pro-active,which has been quite rightly rebuffed by the Prime Minister and the Foreign Minister. Yet the situation is volatile while lawyers behave unlawfully and the Government stands by helpless.

Now Bangladesh has been in the news for all the wrong reasons. One can only hope that the coup has failed and nothing more will happen. But a troubled Bangladesh will severely test the secularist parties across India. If more trouble follows and people start crossing the border in large numbers then Assam and West Bengal will feel the adverse effects. Then,of course,there is Pakistan. There is the aftermath of 26/11 being fought out in words and documents. But Pakistan is also going through its own peculiar crisis. It is one thing for Swat to surrender to Taliban but if Punjab implodes as a result of the Nawaz and Shahbaz Sharif decisions,we are talking about the mainland core of the nation.

This crisis is the consequence of the Devils Pact Asif Ali Zardari signed with Musharraf. In return for keeping the Chief Justice out,Musharraf was willing to let go his doubts about Zardaris suitability. Since Zardari has no mass political base,he is in office solely on the sufferance of the Army. It will be the Army which will decide matters if Nawaz Sharifs followers turn rough. Nawaz Sharif has urged restraint because he wishes to avoid the Army getting back in power. But he also wants to put pressure on Zardari. Pakistans democratic traditions are too fragile to accommodate such a subtle stance.

Faced with three troubled neighbours,India has to act firmly but calmly. The electoral effects of the neighbourhood troubles are even harder to foresee than the economy. What matters is that whoever wins,Indias democracy remains the only beacon of hope in South Asia.