When it rains, it doesn’t rain; it pours. This analogy may be singularly inappropriate at a time when Lord Indra is not smiling benevolently on the nation-state that is Shining India and Suffering Bharat. The torrential flow of bad news has come when the second United Progressive Alliance (UPA) government led by Prime Minister Manmohan Singh can only count on the weaknesses of the political opposition on both the Right and the Left as its biggest strength. The slowing down of the growth rate of the Indian economy has been accompanied by acceleration in the airing of allegations of corruption against the country’s rulers.
What is worse, the world economy looks particularly vulnerable. The American debt crisis has highlighted what was apprehended by many, which is that the Great Recession that began in 2007 and peaked the following year is far from over three years down the line. If the situation in Greece and Ireland can send tremors that are felt right across the globe (including in our very own Dalal Street in Mumbai), the ongoing imbroglio over how to pare the debt of the US government has ominous potential in negatively impacting the economies of the 190-odd countries on the planet. After all, despite its recent problems, the American economy remains the largest in the world - accounting for a little under a fourth of the gross domestic product of all countries put together, or around $14 trillion out of a world GDP of roughly $60 trillion. With the crisis in the US economy showing no signs of abating in a hurry, there is considerable consternation about whether the dreaded ‘W-shaped’, double-dip recession will soon become reality. That would be terrible news indeed, especially since global investment flows have shrunk and the Doha Round of negotiations at the World Trade Organization are in a state of pure paralysis.
Here is what White House Press Secretary Jay Carney said on August 5: “We took an important step towards creating economic certainty here in this country by resolving the debt ceiling crisis earlier this week but these are big issues and our work is not done… There’s no question that this economy has faced headwinds this year, a variety of them, including the earthquake and tsunami in Japan, the increase in oil prices, energy prices that resulted from the unrest in the Arab world, and the situation in Europe also…”
Back home in India, the Finance Ministry has more or less fallen in line with what the Reserve Bank of India has been saying for a while: that it will be tough to expect GDP to grow at very much above 8 per cent during the current financial year, that after a good start the monsoon has spread unevenly, and, most importantly, expecting the inflation rate to come down substantially would be unrealistic. With interest rates likely to remain hard, the domestic investment climate appears dull (with many large Indian entrepreneurs preferring to invest outside the country). Consequently, the growth-inflation trade-off could well degenerate into a stagflation-like situation in the foreseeable future.
It might seem paradoxical to many that the Congress-led coalition government which was re-elected to power in May 2009 with a more comfortable majority and was not dependent on Left support for a majority in the Lok Sabha, should appear so shaky barely two years into its five-year term. Despite the fact that the Bharatiya Janata Party is in disarray in Karnataka on account of serious corruption charges against its former Chief Minister B S Yeddyurappa and despite the decimation of the Communists in West Bengal, the UPA-II government in New Delhi is in a state of atrophy. Few believe that the highest in the government were unaware of the major scandals that have taken place, notably the second-generation (2G) telecom spectrum scam and the Commonwealth Games scam.
Nature abhors a vacuum and the vacuum left on account of the weakness of the political opposition is being filled up by agitating sections of civil society. Those in government are putting up a brave front but they can at best hope to bungle along till the next big test comes its way, namely, elections to the legislative assembly of the country’s largest state, Uttar Pradesh.