In an interview with Forbes last fall, India's investment envoy Kamal Nath defended his nation's calibrated approach" to reform. Of late the calibration seems off.
An inflation pinch, attributable to rapid growth hitting up against the constraints of a still hidebound economy, led the central bank to tighten monetary policy. India's high-flying stocks suffered their second big drop in a year, although, as before, they have recovered.
But the international wave of positive sentiment about the India story is receding. The essential weakness of the central government, with the ever suspect Congress party straining to maintain its dominance, bodes ill for the pace of change.
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In March, swinging to the popular winds, New Delhi clamped down on cement prices, just as it has long suppressed gasoline tabs. Similar acts can be expected in the food sector, which is already subject to export limits to conjure more domestic supply (much of which is lost to rot).
What is needed instead, as in so many areas of Indian physical output, is greater productivity. That is a market economy's best weapon against inflation, but it is held in check in India by layers of political and bureaucratic entanglements on who can do what, where and when.
The service sector has been India's salvation over the last decade, an oasis of remarkable productivity growth. But even here the picture is murky. The retail sector is gradually being brought up to speed, with big stores and ultimately multinational operators able to enter.
But most of banking remains in a time warp, state run and union encumbered. School offerings miss too many among a young and willing population.
No doubt India will have many positive notices to come. Fortunately, its state governments compete for business favor, even while the capital dithers. As the adaptation from Robyn Meredith's new book as well as our own Capital Hospitality Index underscore, globalization is a liberating force. If somehow the Doha trade round could be rescued, it could compensate for thousands of misguided, petty or corrupt officials.
Yet, barring new breakthroughs, capitalists must view India as it is and contrast its prospects with what is happening in the rest of Asia and the emerging economies.
What to make of the American economy meantime? Despite generalized anxiety among the chattering class about an end to the long boom, whether from consumer or business retrenchment or a combination of the two, the bulls are holding their own.
With jobless and interest rates still low, it takes a dedicated bear to stick with a gloomy bet. I'm more comfortable with the outlook of our periodic columnist David Malpass--cautious optimism, tinged with concern about short-term price inflation.
That said, the picture is cloudier than it was six months ago. Not only has the oil "tax" been going back up, but the political situation has worsened drastically for the White House. This means that tax cuts and other market-friendly policies are at risk of being reversed. And the increasing likelihood of a constitutional standoff between George Bush and his congressional foes could distract further from trade liberalization and pressure the dollar. If U.S. economic leadership falters, the world will suffer.
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