To a casual observer of the Indian economy, events of the past few weeks must seem perplexing. First, you had the Indian Prime Minister Atal Bihari Vajpayee urging corporate captains to believe in the 8 per cent growth rate that Finance Minister Yashwant Sinha has been promising for 2002-03-as if believing will somehow make that a reality. Then, the Reserve Bank of India Governor, Bimal Jalan, revealed on the eve of his credit policy that his biggest concern was growth, but in the same breath projected a 6 per cent rise in GDP.

If all that wasn't confusing enough, Ashok Soota, the newly-appointed President of the Confederation of Indian Industry, painted two growth scenarios in his maiden speech to the association members: If the government did nothing, Soota said, the economy would stumble along at the rate of 5.3 per cent (last year's rate of growth); but if the second-generation reforms-involving cuts in subsidies, labour reforms, and infrastructure investment-were kick-started, then growth could accelerate to 6.5 per cent.

Three men who ought to know, speaking in three different voices. What does it mean? That today nobody knows just how the economy will fare because of the fear and uncertainty created by BJP's nemesis called Gujarat. That growth may only be an incidental concern-if at all-of a government fighting for survival. That by abdicating its economic agenda, the government may actually be making it easier for its rival Congress to emerge as an alternative.

"The BJP has virtually messed up every sector of the conomy because of its myopic policy formulations." Sitaram Yechuri, CPI(M), Politburo member	"The four years of BJP rule has neither seen any growth nor any improvement in the fiscal position of the country." Pranab Mukherjee, CWC member
"Our problem is that we make too many promises and implement very few. It only reduces the credibility of gthe government." Arun Shourie, BJP, Cabinet Minister	"Unless policy intentions are allowed to be translated into measures, there cannot be any recovery in the economy." Jagdish Shettigar, BJP, Chief, Economic cell
"Industry was fed up with BJP long before the Gujarat episode. BJP is a lot of talk and poety, but no delivery." Jairam Ramesh, Congress, Secretary (Economic Affairs Dept.)

Ever since the Parliament reconvened on April 22, India's legislators have discussed little except Gujarat. Congress, which has been demanding ouster of Gujarat Chief Minister Narendra Modi, is loath to let go of a golden opportunity to shame BJP into a moral defeat, and the ruling party-despite rumblings within its 22-party National Democratic Alliance-is unwilling to risk its constituency by ceding its Hindutva plank. Several important bills-including Fiscal Responsibility and Management Bill, and The Competition Bill-that have been hanging fire for several months now, have not even come up for discussion. Says J.J. Irani, director, Tata Sons: "The economic agenda has definitely gone adrift. Our rate of growth could have been 7 per cent or more, but we've managed to average only around 5 per cent."

Meanwhile, the stalemate is costing the economy dear. Appaled by the Gujarat tragedy, foreign investors are reconsidering investments in India. Even domestic investors are unnerved at the impact the Gujarat violence has had on markets and industry sentiment. "It was hoped that after the up elections the government would take a more aggressive stance on economic reforms,'' says Shelly Shetty, Director, Sovereign Ratings, Fitch Ratings. "However, the events in Gujarat have overshadowed the reforms process."

Already it is apparent that GDP growth will slow. Exports are losing steam, and foreign investors are running scared. The government, clearly, is under siege. The Finance Minister has had to roll back a number of key provisions in his annual budget to prevent an erosion in NDA's vote bank. Sure, as Sinha claimed, the move will cost only Rs 2,850 crore in lost revenue. What he didn't mention, however, was that such regressive measures are putting the country back by several years on the reforms calendar. More immediately, it is the nascent recovery that is in danger of getting short-circuited. ''Forget 8, 6 or 5.4 per cent growth. India would be lucky to grow 4 per cent in 2002-03,'' says Surjit Bhalla, President, Oxus Research.

Nixing The Recovery

Even as recently as January 2002, before Gujarat erupted in violence, a 5.4 per cent growth in GDP was almost a certainty. After a gloomy first half in 2001, bank credit witnessed a surge. Between September 2001 and February 2002, non-food credit (meaning industry borrowings) soared to $7.8 billion (Rs 37,440 crore) from just $1.25 billion (Rs 6,076 crore) in the first half of 2001-02. According to Jiban K. Mukhopadhyay, Economic Adviser to the Tata Group, what this signifies is that banks had finally overcome the bad loan-induced fear paralysis and started lending to the corporate sector. But preliminary April figures reveal that non-food credit is down again by Rs 1,000 crore.

The theory of a nascent recovery is corroborated by numbers from the Central Statistical Organisation-the government's statistician. Data released by the cso reveals that in the third quarter of 2001-02 (October-December), GDP grew by a happy 6.3 per cent, aided by a stunning recovery in agricultural output, which jumped 6 per cent compared to -0.2 per cent in the same period the year before. The services sector clipped too, notching an 8 per cent increase (versus 4.7 per cent).

"Forget 8, 6 or 5.4 per cent growth. India would be lucky to grow 4 per cent in 2002-03." Surjit Bhalla, President, Oxus Research

But then Godhra happened. Suddenly, politics moved right back on centrestage. If any evidence was needed it came at CII's National Conference on April 27 in New Delhi. Gujarat overshadowed the agenda, and political opponents Sonia Gandhi, President of the Congress Party, and Vajpayee openly slammed each other. Of course, the fact that Gandhi delivered the opening address sparked speculation that industry was making overtures to Congress.

Many political experts believe that as long as Gandhi remains Congress' prime ministerial candidate, its chances of coming to power are minimal. That may be good news for NDA, but for the economy its spells disaster. For, what it means is that Congress-which is unlikely to stop pitching for Gandhi-will continue to hold the government hostage on the Gujarat issue. And as long as the government is preoccupied merely with trying to stay in power, pressing reforms will not get its attention. Agrees Bhalla of Oxus: ''The government really can't do anything in the next two years. Its credibility is in tatters and it has lost the moral authority to rule.''

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