India's bin laden
October 1 in Srinagar was not as dramatic as September 11 in the US. But the attack on the J&K Assembly emphasises the reality that India continues to be a permanent victim of jehad, that the author of the blast is the bin Laden of Kandahar vintage.

Reclaiming The Faith
Despite Pakistan's extremist image, the country is home to a wide cross-section of people holding moderate views on religion. After the terrorist attacks on the US, it is this non-confrontationist lobby that is waging a coup against the militant and vocal religious extremists.

Ready To Strike
The US strategy to strike the Taliban includes making use of the Northern Alliance, favoured by Russia and Iran and distrusted by Pakistan. In its military pact with the front, the US should keep in mind the future power equations in Afghanistan.

VIEWPOINT: KAUTILYA

No Respite In Sight

—By Jairam Ramesh

India has been showing signs of a growth-fatigue. In the four quarters of 1999-2000, inflation-adjusted GDP growth rates averaged 7.3 per cent, 6.2 per cent, 6.1 per cent and 6 per cent. In 2000-1 these numbers were 6.1 per cent, 6.2 per cent, 5 per cent and 3.8 per cent. The latest news for the first quarter of 2001-2 (April-June) is still gloomy with real GDP growth averaging just 4.4 per cent. The fallout of September 11 will make life more tough. The macroeconomic impact will be transmitted via five main channels-trade, equity investment, capital flows, exchange rate and oil prices.

Since our exports constitute about 10 per cent of the GDP, of which around a fifth are to the US, we are certainly not as badly off as countries like Malaysia, Taiwan and South Korea. But if American consumer confidence remains low, India will not remain unaffected. Already, there have been some reports of buyers from New York, which is the hub of the US garment procurement network, cancelling orders from India. However, it is safe to assume that the Bush Administration will go out of its way to boost sentiment by tax cuts and by "pump priming" through additional expenditure on construction in New York and on defence. In addition, the US Federal Reserve has continued on its aggressive interest rate cutting spree and the key rate is now down to 2.5 per cent. A matter of special concern to us is whether the US outsourcing to Indian software companies would decline. There are fears that the growth rate of software exports would halve in 2001-02 to 15-18 per cent. There are also concerns that some companies would cut billing rates . This would be disastrous when the recovery takes place, realistically, in the latter half of 2002.

Equity investment or foreign direct investment (FDI) is not influenced by short-term considerations. If we provide lucrative market opportunities and world-class infrastructure and if we are perceived to be a safe place to invest, investors will come. More than September 11, FDI prospects will be influenced by how we are seen to be handling Enron in Maharashtra and AES in Orissa. Regulatory uncertainty and the perception of "rule rigging" by politically savvy Indian companies are deterring foreign investors in telecom. Elsewhere, privatisation has brought in large FDI. But in India privatisation is stuck, for which the primary blame lies with the Centre itself.

Portfolio capital inflows through foreign institutional investors (FIIs) come into the stock market overwhelmingly as equity investments. The calendar year 2001 has been a bumper year with about $2.6 billion coming in so far compared to $1.5 billion in 2000. However, in September 2001, FIIs sold more than they purchased, the difference being about $113 million. December 2000 was the last month that witnessed such a trend. Here again, if the perceptions of the regulatory process remain negative and given their compulsions to mobilise cash, FIIs could start taking money out. Already, Janus, a major FII, has started liquidating its India portfolio in very large measure.

The exchange rate is a matter of demand and supply. Demand for dollars being what it is for a growing economy like ours, any downward pressure on the supply of dollars will drive up their value and would mean a depreciation of the rupee. Since September 11, the rupee has fallen by about 1.2 per cent in relation to the dollar. The RBI will certainly intervene to prevent any precipitous fall in the rupee's value vis-a vis the US dollar. But there are limits to such interventions as Brazil discovered to its chagrin three years ago.

Barring a spike for a day or two after September 11, oil prices have actually fallen by about $6 a barrel in the past three weeks. The prospect of a global recession is putting downward pressure on oil prices. OPEC has repeatedly stated its intention to maintain prices in the $22-28 a barrel band and is meeting on November 14 to decide on its strategy. Saudi Arabia has undoubtedly played a key role in ensuring that the oil markets are not turbulent. The geopolitics of Central Asia has changed dramatically after September 11 and the entry of Caspian oil and gas into world markets could have a salutary impact.

In his address to the nation on September 14, Prime Minister A.B. Vajpayee promised tough measures to revive the economy. The only "tough" decision his Government has taken so far was when on September 18 it gave an unwarranted bonanza to Central government employees and pensioners as cost-of- living adjustment with effect from July 1, 2001. The additional expenditure in 2001-2 on account of this fiscally retrograde move will be about Rs 791 crore. The result will be further erosion of the already fragile capacity of the Government to boost investment spending. We can then bid goodbye to any sustained economic recovery.

(The author is with the Congress party. These are his personal views.)

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