Unit not long ago, businessmen from the Western Countries and officers the World Bank were not tired of singing Piens of the Indian economy and the Prospects it holds to entrepreneurs, That country was described as ‘ho leading light from among the newly developing nations. India was even described as the figure of Asia, The businessmen from the USA and certain ‘other Western countries did, in fact, invest in India. But these investments ‘were limited to the share market. There was no significant direct investment in the Indian industry, That could be explained by the fact that the western entrepreneurs were reluctant to make long term commitment: ‘There wore underlying fears that India was not politically stable, Sudden political charges could jeopardize these investments, This assessment found vindication in the cancellation Of a power agreement with Enron by the Maharashtra Government.

Anew development has taken place in the recent past as the weakening of the Rupee vis-a-vis the dollar. The parity value of the: dollar for a number of years was in the range of Rs, 3031 but now this has gone up to Rs 3536. The Indian central government and it’s central bank, the Reserve Bank ‘of India, have frantically started buying the dollar to cool it down vis-a-vis the Rupee. But this exercise has failed to reassure traders of foreign ‘exchange, There is talk of one dollar value reading as high as Rs 4142.A ‘vast majority of investment traders are worried about the impact of the rising value of the dollar on the cost of imports for the industry imported from abroad, Exporters are happy but their numbers are not very large. The situation could affect the bottom lines of Indian companies, on its part, the disturbance of parity has cost the western investors in the Indian stock markets dearly, They are either withdrawing their investments or in any case are not pumping in more money. This has further weakened India’s stock markets with its ultimate adverse effects on industry.

The rupee has weakened withe dollar because India is under a heavy debt to western countries, mainly the USA. India is in no position even to service the loans, Now that the country has to start repaying the debts on a massive scale, the Rupee has started crashing. Coupled with the Indian government’s measures to keep inflation under control, the situation has created a crisis of confidence of industry, For the first time, the Indian industry has started feeling the pinch of political instability. They want early elections so that adverse effects of the unknown are minimized. The industry must know whatever is in store for it. The western entrepreneurs, on their part, are also waiting for political uncertainty to end before they could make up their minds on future investments.

The Narasimha Rao government is bereft of any catchy issue or slogan to influence the voters. The assassination of Beant Singh has robbed Rao of an effective slogan of having brought about peace in Punjab. The Prime Minister has dared not mention Punjab after August 31. Now efforts are afoot to railroad elections in Kashmir which would then be paraded as a ‘great victory for Rao to achieve peace in Kashmir. That would hopefully provide an issue to the Rao government to attract votes in the Lok Sabha elections to be held sometime in April May. Thus the Indian industry and the politics have to contend with a period of uncertainly for about six months. Even then no political observer is willing to bet for any political party winning a majority in the Lok Sabha. As such prolonged instability stares India in the face, The country will have to experience coalitions. The prospects for the industry and economy are not at all reassuring. The central government will remain weak and indecisive in devising solutions to the Kashmir and Punjab problems. There inevitably will arise a power vacuum. The army may be tempted to fill the gap. There could be talk of constitutional changes to introduce the Presidential form of government. It is also possible that the Congress (I) government as the chief representative of Hindus may indulge in pinpricking Pakistan on the eve of the elections.

That could even endanger peace in South East Asia, There does not appear any way for India to get out of the morass in which it is sinking deeper and deeper.

Article extracted from this publication >> November 3, 1995