"If you continue with this prophecy of gloom it will became a self-fulfilling prophecy." Said FM Yashwant Sinha in response to the pessimism repeatedly expressed by the top guns of Indian industry and commerce assembled in a FICCI-sponsored meeting at Delhi on August 13. Perhaps he was right, and in both senses: that businessmen will continue with the prophecy of gloom and that the prophecy will came true.

For by all indications, the economic prognosis is dismal indeed. Just the day before the August 13 meeting, the rupee had a free fall and went down to a historic low of 43.35 against the US dollar on the international forex market. What is particularly significant is that the crash fits into a ruthlessly repeating pattern: crossing the panic barrier, remaining relatively stable there for a time, then falling below a new panic barrier. Thus it crossed Rs. 40 to the dollar in mid-January this year, Rs. 41 in mid-May and Rs. 42 in late June. Contagion effect from the Asian crisis? To an extent yes but that hardly comes as a comfort.

Simultaneously with the external value of rupee, the sensex also fell sharply – below the 3000 mark. If this is largely attributable to the growing political uncertainty, the medium-term trends in the primary capital market also reveal the same gloomy picture. In July this year, there was only one public issue and the four months of the current fiscal (April-July) witnessed 11 public issues raising a megre Rs. 837 crore compared to 62 issues aggregating Rs. 3,061 crore in 1997-98 and 753 issues for Rs. 11,648 crore in 1996-97. Both the promoters and the common investors are shying away from the market while savings are rotting in banks and financial institutions. Even the most prestigious conglomerates are hesitating to come up with fresh issues.

The recent declines in the secondary and primary stock markets are only a reflection of the real state of industry. According to the lastest survey by the Capex Service of the Centre for Monitoring Indian Economy (CMIE), as many as 77 big projects involving investment with Rs. 84,788 crore were postponed or dropped altogether between August 1997 and July 1998. The worst to suffer was the chemicals sector, followed by electricity generation, while telecommunications stood out as a rare exception (see table). Broadly speaking, both manufacturing and infrastructure sectors took a heavy beating. Even the railways, according to a report in Business standard of August 20, are trying to persuade the government to scrap 90 percent the new line projects and 60 percent of the gauge conversion projects announced over the past few years.

Apart from projects stalled, existing companies are doing no better. A CMIE study of the first quarter results of 548 companies this year shows that barring the big oil companies, profits of others recorded an increase of a meagre 1 per cent – and that too over the mere 3.7 percent rise recorded last year. Adjusted with inflation rate, these figures actually indicate a negative growth in profits. Basically similar trends are observed in sales figures. Not only manufacturing but even the service sector – the major growth sector for quite some time now – is in for trouble. It is showing negative trends for the second year in a row, high growth areas like airlines, hotels and advertising not excluded.

The scenario is equally bleak on the exim front. In June this year, exports were 11 percent less compared to the same month last year. In June imports also fell by 3.87 percent, obviously thanks to the slowdown in industry. Trade gap is widening: in the first quarter of fiscal 1998-99 it was a full $1 billion more than the $1.39 recorded in the same period last year. In a frantic effort at crisis management, commerce minister Ramakrishna Hegde announced a package of measures on 12 August, including lowered interest on export credit. This was followed the very next day by 2 per cent cut in export refinance rate as announced by the RBI. But will all these measures really help?

Douts crop up because a host of such measures in the past, including successive devaluations, have failed to have much of an impact on our export performance. Moreover, at this particular moment the world economy is passing through a definite slowdown if not a full-blown recession. Plummeting petro-prices in world markets and a decline in the US GDP from a robust 5.5 per cent (which, incidentally, used to be regarded as the only silver lining in the world economic gloom) in the first quarter of 19 to a measly 1.4 per cent in the second have already led some observers sound an economic red alert. The South Asian crisis is continuing. Even Japan, after a seven-year stagnation, has sunk into outright recession. Its industrial production fell by 23 percent in April and May, and despite a depreciation in the value of yen, Japan’s exports declined by 3.2 percent in May and 1.1 per cent in June. On August 17 Russia devalued the rouble by over 50 percent and on the next day Mr. Yashwant Sinha said in Bangalore that this would certainly hurt the Indian economy, since Russia is one of our major trading partners. There is a good chance of a devaluation of the Chinese yuan under pressure of the Asian meltdown and particularly the continuously down sliding yen and if that happens the situation will worsen for us. In this race among nations to sell cheaper at the global market place, even our ever-optimistic finance minister is not in a position to talk of export-led growth.

To add to the woes, the World Bank in its "India 1998 Macro-economic Update" has revealed that foreign institutional investors have withdrawn more than $400 million from the stock markets in May and June this year. Foreign investments could slowdown further, it warns, and advises more deregulation.

All these – and many other – domestic and world economic indicators have taken a very heavy toll in terms of business confidence in India. This is best revealed in the Business confidence Index Survey contained in the latest quarterly report of the National Council for Applied Economic Research (NCAER). The survey, covering 526 firms, have shown the steepest ever (18 per cent) decline in July over March 1998. The firms apart, the council’s own estimate is that there will be no industrial recovery in the second quarter of this year, foreign inflows will fall by as much as one billion dollars, interest rates and inflation will rise and the rupee will sink to 44 to the dollar (at the time of writing it has already crossed the 43.50 mark) — all in the "near future".

If men of business are thus more than justified in their "prophecy of gloom", for ordinary people life is becoming more and more unbearable. To them recession is not an economic category but a hydra-headed monster that eats up jobs of millions (and this on top of the huge retrenchments effected earlier thanks to economic ‘restructuring’) and makes it impossible for small businessmen and self-employed persons to carry on. In June this year, economic journals posted a 6.87 per cent inflation in terms of the wholesale price index or WPI (which rose further to reach the 139-week high of 8.32 percent on July 25) and 12.4 per cent in terms of consumer price index for industrial workers (CPI-IW); but all such drab figures pale into insignificance before the ultimate reality of hunger. Naturally, even as the business world fumes and the FM tries to put up a brave front, agitations against price rise is picking up in different places.

What is the present union government’s response to all this? About the directionless half budget and other anti-people policies, we have had occasions to comment in earlier issues of this magazine. What is particularly note worthy in this regard is the way the ‘Swadeshiwallas’ have been kowtowing before MNCs, particularly in the face of post-Pokhran sanctions. Perhaps the most generous bribe paid by the ruling dispensation from the nation’s wealth comprised the granting of 18 oil exploration contracts and 34 offshore mining concessions to US, Irish and Australian companies. On 14 June the Oil Ministry handed over around 43,000 square kilometers of oil fields lying in Rajasthan, Gujarat, the Northeastern regions, with the US multinationals topping the list with 31,570 square kilometer.

The power ministry could not afford to fall behind. It hurriedly cleared three fast track projects proposed by US multinationals which were hanging fire for a long time. Emulating it, the Mines Ministry cleared 34 proposals from foreign companies for prospecting. Within a week the US investment proposals worth $11.5 billion that were kept in abeyance for several years were hastily approved. Involved in these proposals are the projects controlled by 13 out of the 20 largest MNCs in the world.

In a major policy change, the government announced opening the Indian ports for joint ventures with foreign companies. And Jethmalani opened up the housing sector for foreign investors while seeking to change the land-ceiling act accordingly. After this, the government cleared investments worth Rs. 5,000 crore in 6 projects totaling Rs. 15,000 crore. Just on the eve of the G-8 meet, the BJP-led government surrendered the control of Maruti to Suzuki. On 20 June, the government cleared a number of foreign investment proposals including those by America’s Ford Motors and Japan’s Toyota.

So many major decisions in such a short span of time demonstrates the utter falsity of the "India should be built by Indians" rhetoric. In fact, by "Indians" the BJP seems to mean non-resident Indians in the first place. Thus, continuing the spate of shameless surrenders to foreign capital in its various forms the centre has on August 8 further eased the norms for investments by NRIs (non-resident Indians), PIOs (persons of Indian origin) and OCBs (overseas corporate bodies). These entities can now invest in unlisted companies under the portfolio investment scheme. The government has also freed NRIs of the conditions that medical centres or hospitals set up by them be equipped as per health ministry norms and that 25 per cent of the facilities available in such hospitals are provided free of cost to the poor and the needy. Needless to say, these waivers will only cater to more naked exploitation and criminal negligence in the highly profitable health sector of the economy.

All said and done, the government is still nowhere near a workable solution to the worsening crisis. Euphoric talks about science-industry interaction and certain plans for scientific-military complex (e.g., a mid-June meeting of the Defence Ministry and the CII where defence research laboratories were decided to be opened up for private sector utilisation and corporate houses were invited to participate in defence production and marketing) notwithstanding, no concrete breakthrough is likely in near future. In such circumstances, will the present coalition government continue to enjoy the support of the big bourgeoisie and the landlord-Kulak lobby which helped it to power not so long back? And will the suffering masses allow this anti-people government to continue for any length of time?