Several macroeconomic parameters are signalling problems ahead. The current account deficit has been widening each month and could well finish the financial year at nearly 3 per cent of the gross domestic product (GDP). In fact, both components of the current account deficit--trade and invisibles--will remain under pressure. Already, the trade deficit (at $6.01 billion for the seven months till October) is more than double the level it was last year ($2.41 billion). Of course, from this year, gold imports are being included in the customs-cleared import figures. Thus, comparing trade statistics accurately requires us to discount this change.

However, even if we take out the gold imports, the trade deficit for April to September is $2.82 billion, 75 per cent higher than the $1.61 billion recorded on a non-gold basis in the equivalent period last year.

Clearly, the trade front is in amess, and with world growth expected to fall in 1999 (relative to 1998), this aspect of our economy is not going to get any easier. Exports (April to October) have fallen by 4 per cent from the previous year, and on a running 12-month basis are at their lowest level since April 1996. Of course, the sharp depreciation of some competing currencies has doubtless exacerbated our poor performance, as has the dramatic fall in commodity prices (which has reduced the dollar value of our export earnings). As always, our continuing vacillation on agricultural trade policy continues to create major problems.

Thus, it is hard to see any real respite unless there is a concerted push through a sharp weakening of the rupee. We do acknowledge that this unidimensional approach to export growth is not the healthiest, but when we have virtual paralysis on the infrastructure front and a commerce minister who continues to fiddle away with meaningless export growth targets, the poor little rupee seems the only one braced to takea hit.

The other side of the trade equation--imports--is more or less certain to grow faster than they did this year. In the first six months, non-gold imports grew by a mere 4 per cent year-on-year--an unsurprising reflection of the feeble level of economic activity in the country this past year. There are already some signs that the economy is coming out of its year-or-more-long slump. Real-estate markets are seeing increasing activity at their current low levels, and the equity markets appear to have firmly bottomed out. If these signals do indeed continue, they could presage a modest revival in economic activity, which would lead to a rise in imports and the trade deficit.

The invisibles account, which had always provided a strong assist to the current account, could also come under pressure. While software exports will continue to be strong, the other two significant entries under this head--tourism and remittances--will get more difficult in the years to come.

Tourism has already taken a hit, withthe cheap south-east Asian countries eating not only our lunch, but our breakfast and dinner as well. India appears to have fallen into the super budget tourist slot, with winter charters from the UK going as cheap as 199 pounds sterling for two weeks in Goa. While all tourists are welcome, it is obvious that some--the $150 to $200 a day rollers--are more welcome than others. To woo these visitors, however, we need a complete overhaul of our infrastructure. Things will change, but slowly. In fact, the Four Seasons hotel chain--one of the leading tourism companies in the world--(reportedly) doesn't expect India to take off as a major tourist destination for another five-seven years.

But perhaps most difficult of all for the current account is going to be the decline in workers' remittances over the next few years. With oil prices around $10 a barrel--and apparently expected to remain there for some time--the Gulf states are going to be quite a bit tighter than they've been historically. This suggests thatthe number of Indian workers being solicited will be smaller, and the remittances they send back--at its peak, as much as $7 billion a year--will be that much thinner.

Thus, even if the 1998-99 financial year ends with a current account deficit of just a bit over 2 per cent of GDP--the finance minister is targeting 2 per cent--most things point to a continuing deterioration into the future. And markets, as we all know, don't wait for the event. They usually act on the merest anticipation. So it stands to reason that we will see increased pressure on the rupee fairly soon--perhaps early this year, when the budget is announced.

There are other signals of impending pressure on the rupee. Foreign portfolio flows have all but dried up. In fact, they have been negative in eight of the past 12 months. While some of the blame for this can certainly be placed on the rapidly deteriorating international appetite for risk, there is little doubt that our aborted liberalisation process has much to answer for aswell.

Most alarming, of course, is the sharp slowdown in direct investment. Nobody in their right mind has ever questioned the fact that India can provide a great--and profitable--market. The fact that direct investment is currently quite anaemic perhaps also points to a perception that the currency either needs to be or is going to be much weaker in the days to come.