All Fools? Day is perhaps a good a way of beginning the new financial year. Admission beforehand that what mortals set out so grandiloquently to achieve are just fools? errands. Even truer for those who venture to fill out the dim contours of the year to come. But the uncertainties that prevail this April are rather more intense.

The Iraq war is set to come to an early end. However one views the US-UK venture, an early end to a conflict that has an unambiguous outcome is in the best interest of all parties, particularly of civilians who suffer terribly. But with the end of this war, will US and other western economies perk up? The conventional wisdom till the autumn of 2002 was to expect a recovery by the middle of calendar 2003. The drums of war put an end to that.

Although there is evidence to suggest that war-related uncertainty adversely impacted consumer confidence in important western markets and prolonged the current bout of economic sogginess, it is not at all clear that when the guns stop firing in Iraq, the course of events will change rapidly for the better. It is quite possible that recovery in the US might be delayed. That is, of course, if there are no follow-ups on Iraq; no spillover to Syria or Iran; early pacification of nuclear-armed and bellicose North Korea; and no large-scale terror attack.

Oil prices will almost certainly soften, settling at present levels or a bit lower. At least until the western economies once again show signs of strong recovery. The future of the US dollar is more uncertain. In recent years the greenback had acquired the apparent role of a global reserve currency, which some liked to theorise was the future state of affairs. However, the fact was that rising US asset markets attracted huge inflows of capital, at a time that Japanese assets were beaten down and European assets did not look exciting. This huge appetite for US financial assets is what enabled the easy financing of the monumental current account deficit ($503 billion in 2002, up from $393 bn in 2001).

In 2002 itself, foreign investment in US equities and corporate bonds declined by $123 bn. Much of the capital flow into US markets is from Japan and other Asian exporters. While European and other investments in US assets have reportedly already declined, there is yet the possibility that Asian central banks will continue to support the currency of their principal export market. The strains that are pulling at the seams of the post-Second World War alliance of the developed nations are not unrelated to what is going to happen in the currency markets. If after the war there is some coming together within the developed world on Iraq?s reconstruction, the dollar could well gain. If the relations turn sourer still, leery investors will begin to hedge their bets by increasingly opting for currency diversity, and the dollar could slide further.

We have of course the rain gods to worry about. The last time there was a drought (1986) the next year was just as bad. So, the possibility of a second successive monsoon failure is certainly very much on the table. Having got it wrong last time, it is reasonable to expect that the Meteorological Department will hum and haw this year. We will not know till July whether the rain gods are going to give us a pasting or not. According to the venerable ministry of agriculture, this year?s (2002-03 agricultural year which is July to June) foodgrain output is 28 million tonnes (mt) less than last year?s. If this monsoon also fails, maybe another 28 mt will be lost. Little matter that prices do not rise in tandem. Perhaps Indians have taken Marie Antoinette?s advice to heart and disavowed their unwholesome addiction to cereals. April 1 is indeed an excellent point to begin.

The author is economic advisor to ICRA (Investment Information and Credit Rating Agency)