The Hindu Business Line : Of despair and hope

If there is one reality Indians should recognise as the new year begins, it is the awareness that we are in an economic crisis, though it is perhaps not as severe as the recession in the developed economies. In 2009 India will likely look back at the most eventful year since Independence with bemused wonder. It was a year of exuberant hope and puzzled despair, of the promise of peace with a democratically ruled Pakistan and the violent recognition of the fragility of that promise. So 2009 will be the year of reckoning, a time to absorb the lessons of 2008 and the challenges its turbulence has thrown our way.

For the economy the worst is not over. The third and fourth quarter results of the current fiscal will tell us just how much the global crisis and its severe fallout since September has forced the economy downward, a lagged result unmitigated by the monetary and fiscal stimulus that came too late in the day. So India will have to recognise that the economy is not as decoupled from the rest of the world as policymakers had made it out to be all through 2008. It is not just exports and the IT sector and the equity market that are affected; the entire economy has been pervaded by an aversion to risk that constricts capital flows and investment. The lesson of the slowdown from 9 per cent GDP growth is that India too is a cyclical economy but with a local ingredient that spoils the flavour of its success. So, unless the persistently backward farm sector and physical infrastructure are addressed in any stimulus, a return to the growth highway may be delayed. Given the time left for the present government, most investments may remain tentative. It is the next government that will have to lay the ground for fresh industrial expansion by piloting those held over Bills, the new Mining Policy and the Land Acquisition Act through Parliament and by creating mechanisms to ensure timely execution of Plan projects.

For industry, 2009 will be a period of consolidation through cost-cutting, heightened efficiencies through restructuring business and core competencies for the next round of growth. For the first time, firms will recognise the value of self-help and the pointlessness of seeking subsidies and concessions. So the new year will start not on a song but on a sober note of re-evaluation. For the first time since 1991, when the economy opened its doors to the world, it will have to devise newer responses within shortened time-spans if it is to keep pace with the shifting fortunes of globalisation.