Some readers of this column have e-mailed me to make
another set of forecasts — like the ones I made in
early 2008. I went back to those forecasts to find
that I was right for four out of eight (falling US
growth, falling Euro zone and UK growth, the
prevalence of a scary word called ‘sub-prime’
throughout 2008, and China not drastically revaluing
its currency); was directionally correct for a fifth
(slower Indian GDP growth); and plain, dumb wrong
for the other three (crude oil fell to well below my
floor of $ 85 per barrel; the damn US dollar
actually strengthened as everyone exited everything
to hold on to treasury bills; and commodity prices
crashed).
Should I be foolhardy and make another set of
forecasts for 2009, I asked myself? Tired as I am of
the cautious “one the one hand… but on the other”
expositions of some of my fellow economists, I said
to myself, “Better a Quixotic fool in search of
windmills, than one who, by saying nothing, never
has to admit any wrong”. So, readers, here goes once
again.
• Forecast 1. This has to do with the US economy,
and I’m fairly sure that I’ll be correct on this
one. In 2009, notwithstanding President Barack
Obama’s revival package, US real GDP growth will
fall by anything between 1.2 per cent and 1.4 per
cent. In other words, something between $170 billion
and $200 billion of goods and services will
disappear from the United States of America. Not
counting other collateral damage.
• Forecast 2. Euro zone and UK GDP growth in 2009,
for which I’d give myself 80% probability of being
right. Euro zone GDP will fall by somewhere between
1.3 per cent and 1.6 per cent for 2009 — and that’s
another $190 billion to $230 billion of goods and
services going off the table. Great Britain is in a
right royal mess. Nobody expects any turnaround in
the near future. My prediction is that the UK will
see real GDP fall by 1.6 per cent to 1.8 per cent in
2009.
• Forecast 3. This one concerns India’s GDP growth
for 2008-09 and 2009-10. The former is somewhat
easier to get a fix on; the latter is more nebulous.
My bet is that our GDP growth for 2008-09 will be
under 7 per cent — more like 6.7-6.8 per cent. It
could have been worse had we not achieved 7.9 per
cent growth for April-June 2008, and 7.6 per cent
for July-September. Forecasting growth for 2009-10
is tricky. Even so, here is a very tentative number:
somewhere between 5.5 per cent and 6 per cent. Don’t
pin me on this one as yet.
• Forecast 4. The combined fiscal deficit in
2008-09, including various off-balance items, will
soar to over 9.5 percent of GDP — roughly 5.5 per
cent on account of the centre and another 4 per cent
because of the states. I also expect it to get worse
in a milieu of the chaotic non-governance that may
well characterise 2009-10.
• Forecast 5. Together, the Congress and the BJP
will not win 270 Lok Sabha seats in the 2009
election. That is, they will not succeed in
collectively cornering even 50 per cent of the
seats. Be prepared, then, for an even more fractured
and fractious coalition government, as political
parties which win even half a dozen seats will
demand their pounds of flesh for supporting
whichever coalition that meets their greed. Much
cash will change hands. And many lucrative cabinet
berths will be promised to new found allies.
• Forecast 6. Unless she makes a real hash of it,
Mayawati will hold the aces. Even if the Bahujan
Samaj Party wins 35 seats — which looks like a ‘done
deal’ — she will call the post-election shots. My
guess is that 2009 will be her defining moment in
the national arena, and she may actually win above
50 seats. If that were to pass, the Congress, the
BJP and the so-called Third Front will all woo her
like never before. My instinct is that she will not
immediately jump at premiership. Instead,
Jayalalithaa like, she may support a government only
to destabilise it at an appropriate time, and create
conditions for even greater consolidation of her
party in the centre.
• Forecast 7. With the fiscal deficit widening in
2008-09 and 2009-10, I can’t see how real interest
rates will remain benign and low for all of the next
18 months. Government’s pressure to finance a
growing deficit will eventually force higher
interest rates — more than what we are hoping it
ought to be.
• Forecast 8. Forget about any major stock market
rally. I will be very surprised if, on a consistent
basis, the BSE-Sensex remains above the 14,000 mark
for nine months of calendar year 2009.
now, readers of this magazine are aware of the
twists and turns of the Satyam saga. It’s like Akira
Kurosawa’s 1950 film, Rashomon, where a woodcutter
and a Shinto priest re-tell mutually contradictory
stories about a woman, her dead samurai husband and
a bandit as they wait out a rainstorm in a ruined
gatehouse — leaving the viewers to determine which,
if any, is the truth.
Published: Business World, February 2009
