Column: Political turmoil vs economic turmoil

Written by K Vaidya Nathan | Updated: Dec 25 2012, 06:44am hrs
We are in the last week of the year and its a time when most of us start to think about the new year and the prospects it holds for us. In this piece, we try to extrapolate from the economic-political trends and issues that the world is grappling with right now and try to hold a glass prism for what 2013 bodes for us.

Let me start with Indias economic forecast, especially output growth, which is likely to be less than 6% in the coming year. Domestically, we used to crow only two years back that we had successfully avoided the financial crash of 2008-2009 and that our GDP growth rate was north of 8%, which compared extremely well with that of the global average of less than 2%. Since then, our economic health has deteriorated with a spate of high-profile scams denting economic sanguinity. As far as global output growth is concerned, in 2012 it averaged only slightly more than 2% and is likely to stay sluggish in 2013. This is because economic troubles are evident in the mature economies of Europe, which are back in recession, and the United States, which is experiencing an anaemic economic recovery. The risk in 2013 is that these economic troubles could be mutually reinforcing, thereby making even a 6% GDP growth for India look optimistic in retrospect.

One issue that could strain the struggling global economy is the approaching fiscal cliff in the US. The White House and the US House of Representatives still have time to cut a deal to avert the cliff. But if they dont, the result would be to put considerable downward pressure on the US economy, and, in turn, the global economy. And even if Washington avoids going over the fiscal cliff, it is unlikely to solve its fiscal problems entirely.

Politically, on the domestic front, there seems to be general discontentment with the UPA government. The spontaneous outpouring of the youth to protest and demonstrate in the wake of the gang rape of a medical student in the national capital, isnt just about demanding justice for the victim and her family. The outrage by the diverse sections of the society, who poured into the streets of even unadventurous cities like Allahabad and Mysore, is symptomatic of the general discontentment with the governance deficit of the UPA regime. And now with Narendra Modi scoring an emphatic victory in Gujarat and the UPA government surviving on external support due to the pretentious benediction of incompatible partners like the SP and BSP, 2013 seems to be a year of national elections where political fortunes could swing big time.

Globally, turmoil continues to rock the Middle East. Syria will likely dominate the headlines early in 2013 as its civil war intensifies and fears grow that the Assad government will use chemical weapons in a last ditch effort to hold onto power or that jihadists will capture those chemical weapons. Egypt continues to struggle to craft a new political order and to jump-start its economy. And Iran is pressing ahead with its nuclear programme, raising the prospect that sometime in 2013 it will breach the red lines that the US and Israel have drawn.

Closer home in Afghanistan, two things are clear in 2013the Taliban will continue to fight and the number of NATO troops will continue to decline. The Obama administration is discussing how fast the US troop draw-down will proceed, how large the residual force will be at the end of 2013, and what precisely those troops will do. In all, it is hard to be optimistic about peace and stability in West Asia.

Towards our east, territorial disputes in East Asia have the potential to explode in 2013. Profits and patriotism are fuelling the tensions. How the lines are drawn in the East China and South China seas will determine who benefits from exploiting potentially vast offshore oil and mineral deposits. Meanwhile, nationalism makes it difficult for East Asian leaders to concede claims to neighbouring rivals, especially when many of the political heads will be new to the job in 2013, including Chinese President Xi Jinping.

Tensions are growing not just in the physical world, but also in the virtual world. Internet users, especially social media users, have grown accustomed to using the internet to say what they think, including bravely advocating politically volatile issues. The powers-that-be in most countries find that freedom threatening and have sought to assert greater control over the virtual world and even to use technology to identify and punish their critics. A good example of that being the prosecution of WikiLeaks head, Julian Assange, who is holed in the Ecuadorian embassy in London. Like other journalists who are faced with harassment because of their work, Assange and the invisible patrons of WikiLeaks will release a lot more documents in the coming year, which is the only way for them to retaliate. The virtual world freedom debate isnt going away too soon as journalistic ethical issues are never easy to resolve.

All in all, it doesnt look to be a very quiet 2013. That said, it is not all gloom and doom, ashes and dust in the new year. For, it is only when the incumbent economic-political system is contested that renewal, revival and renaissance happens.

The author, formerly with JP Morgan Chase, is CEO, Quantum Phinance