America's General
Pakistan takes its most crucial decision since the 1971 war — to side with the US against the Taliban. The clerics may protest, but Musharraf has few options.

ECONOMIC IMPACT
Where Are We Going?
Fear and uncertainty stalk the Indian economy as early damages begin to show.

Ready For Battle
Where will the US strike, with what and how? A report on the military options before the global coalition that the Americans are building against terrorism.

Shifting Stance
Indian foreign policy is in a flux following the terrorist strikes in the US, metamorphosing in tandem with the tectonic shift in the geopolitical landscape of the world.

Menace In The Mind
People like bin Laden are not so much politicising religion as religionising politics.

COVER STORY: ECONOMIC IMPACT

Where Are We Going?

Nobody is ready to bet yet as an uneasy mix of fear and uncertainty stalks the Indian economy. But early damages to business have begun to show.

— By Rohit Saran with V. Shankar Aiyar and Malini Goyal

Winston Churchill once described Russia as a "riddle wrapped in a mystery inside an enigma". That's a fitting description of the Indian economy today, best reflected in the capital and currency markets. Most businessmen are in two minds. They want to believe that India's insulated economy-with less than a 2 per cent share in the world's GDP and less than 1 per cent share in global trade-will withstand the tremors of global economic uncertainty better than most other countries. But they are also haunted by fears that a shaken US economy could hasten the downward spiral the Indian economy has been caught in.

	Figures are closing value of the BSF Sensex

"Earlier there was an uncertainty psychosis. Now we have a fear psychosis too, both running concurrently," comments Madhukar Kamath, CEO of ad firm Bates India. "Both are not conducive to either new investment or higher consumption." The combination of fear and uncertainty will affect any chances of an early economic revival. "The hope of a global and an Indian recovery are dashed for some time," says J. Mukhopadhyay, chief economic adviser of the Tata Group. After all, India's economic landscape was hardly reassuring before September 11. Consider this:

Industry grew by only 2.1 per cent in the first three months of 2001-2, the lowest rate of growth since the first quarter of 1994-95.

Between April and July 2001, the Central Government ran up a deficit of Rs 58,628 crore. That is Rs 22,982 crore more than the deficit during the same period of 2000.

Trade was also tanking. Cumulative exports between April and July 2001 were 2 percentage points lower than last year's level. Imports too declined by a similar percentage.

In the last week of August, the Delhi-based NCAER scaled down its forecast for GDP growth in 2001-2 from its June estimate of 6.3 per cent to 5.5 per cent. Export growth forecast is down to 9 per cent from 15 per cent.

Right now much hinges on what we do not know. When and how will the US retaliate? Will West Asia be engulfed by war? Will oil prices flare up? Till these questions are resolved, investors-and to an extent consumers-will be

hesitant to open their wallets. "Terrorist strikes have injected the killer of them all-uncertainty-into the economy," asserts Mike Khanna, chief executive of Hindustan Thompson. The routes through which the global uncertainty will impact India are the capital markets, oil prices, rupee value and foreign investors' sentiments (see box: Three Tier Impact). On the first day of the week after Terrible Tuesday, the Bombay Stock Exchange's 30-scrip Sensex plummeted to its lowest value in eight years. The same day, the rupee slid to 48.41 against the US dollar before recovering to Rs 47.71 by the day's end. Though the Sensex-and most other global indices-did recover after that steep fall, nobody is ready to bet on the short term. "Too early to say", is the refrain of even the most seasoned of market analysts.

Of course, everybody knows that in the long term, stock prices will rebound. And for the infotech industry there may be big gains to be made once the US economy tides over the short-term crisis and gets down to rebuilding. But the big question is: how short is the short term? Nobody has an answer, except perhaps the two Bs-Bush and bin Laden. "There is a lull now as we wait and see how the US smokes out the terrorists. The method it adopts would affect geopolitics and the ripples would have an impact on the Indian economy," says Mukhopadhyay.

Constant suspicion, poverty, ill-health and lack of work dog Afghan asylum seekers in India. INDIA TODAY's Principal Correspondent Anna M.M. Vetticad meets some of them.
Living On The Edge