At a recent strategic affairs conference, listening to a series of Indian Ministers and officials discount the hype about India's imminent great power status and stress and urge that this was, after all, still only a developing country, an Opposition MP chuckled. "It's food inflation," he said, "it's taken the wind out of their sails." The contrast was remarkable. The very UPA Ministers and representatives who had, till the other month, been talking of India's arrival were speaking with an almost 1970s-style cautious pessimism.

Admittedly, the surge in prices - particularly food prices - had contributed to the mood. The Congress doesn't want to be heard bragging about India's economic achievements and power projections at a time when even middle class salary earners are being hit hard by the grocery bill. An election year necessitates careful oratory, nostalgia for socialism and shunning claims that may sound insensitive.

Having said that, the "India sobering, India subdued" sentiment of the past few weeks may only be anticipating a longer tempering. Having been the toast of fund managers and media mavens, statesmen and pundits for the past five years, this country may just be entering a period of lull.

India's happy hour began in the second half of the NDA Government (1999-2004). It was hailed as - perhaps earlier than it should have been - the next China, the next Asian miracle. The UPA Government, essentially benefiting from the reformist policies and infrastructure push of the NDA, reaped the crop. From economic growth, the focus shifted to India's strategic role. Indian interlocutors made all the right noises, did some of the right things, and indicated they were alive to an expanded role for New Delhi on the world stage.

Heady economic numbers, a stock market that defied gravity almost as much as it defied logic - at least through 2007 - and the continued faith of foreign investors who crowded Dalal Street combined to create an irrational exuberance among individuals and agencies that shaped India's external relations.

Is this golden hour now behind us, unlikely to recur for at least three years as the India story goes into one of its periodic dips? Is food inflation only a portent of other challenges? What would be the implications of these on the way the world sees India, and how India sees itself?

Four factors will merit attention over the next 18 months. First, while foodgrain prices may fall in the short run, inflation in commodities such as steel, oil and cement is not going to be reined in as easily. Food inflation is also likely to rear its head over and over again.

A 7.5 per cent rate of inflation may be insignificant by Zimbabwe's standards and may be less than a third of what President Mahmoud Ahmadinejad's wild populism has done to Iranian inflation. Yet, this indicates the first sustained inflationary spell experienced by the generation of Indians who came of working age after 1991. It is going to be a hard reality check for even those who gained from liberalisation and the opportunities it threw up.

There will be obvious social and political consequences. The price effect will hit the Congress hard in the next election. Even so, tackling inflation is going to become the number one task for any Government that is voted to office in April 2009. It will enter crisis mode without the luxury of a honeymoon. This will severely circumscribe its decision-making autonomy.

Second, irrespective of who leads it, it is a fair estimate that the next Government will be a ramshackle, unwieldy coalition, about as incoherent as the UPA Government if not more so. Panic-stricken by inflation, it will find it tempting to resort to larger doses of populism. This will, essentially, worsen the economic problem without tacking structural lacunae in, for example, agriculture.

If it is unable to meet expectations, the Government will inevitably face pressures in terms of longevity. In any case, its ability to devote time to long-term policy-making, grand strategy and third generation economic reforms will be curtailed by its attempt to deal with inflation and economic slowdown, both of which would have actually preceded it.

Third, it has become fashionable in recent years to suggest that the locus of economic reform has moved to the States and that Indian business is moving ahead despite the Government. While somewhat true, this assertion has also been a UPA cop-out, an excuse for its inability to take substantive decisions. From fiscal reform to infrastructure, from investment policy to regulatory systems, there is still much that the Union Government has to do.

What has the UPA's record been in this area? It has ducked many tough decisions. Unchecked by a strong Prime Minister, individual Ministers, particularly from allied parties, have run riot. The case of the DMK Ministers - Mr TR Baalu (Shipping and Transport) and Mr A Raja (Telecom) - is there for all to see.

Indian telecom has been the shining star of economic deregulation. Yet, by allocating spectrum and licences to fly-by-night players and patent rent-seekers, by making huge demands on industry, the current Minister has done serious damage. Telecom barons say that in private conversations, both Mr Manmohan Singh and Ms Sonia Gandhi have pleaded Mr Raja is beyond control.

Corruption at the Centre is forcing Indian businessmen to diversify and look at options abroad. In an earlier generation, it drove Aditya Birla and LN Mittal out of India. Will brazen UPA-type coalitions trigger another flight? Investment abroad is an indicator that there is greater efficiency of capital there. It could make Indians rich, not India.

Fourth, of the BRIC (Brazil, Russia, India and China) countries, attention has tended to be on the two Asian giants. With China expected to decelerate after its frenetic pace over the past 10 years and with internal politics diverting India, the cycle could turn.

The emerging market of 2008-09 could well be Brazil, which has discovered some of the planet's biggest offshore oil reserves and is potentially at the cusp of an economic big bang. This will trigger a procession of marketing gurus and Wall Street tycoons, and buoyant forecasts. India will have competition. It will have to live with not being flavour of the season.

Courtesy: www.dailypioneer.com, May 07, 2008