Even if there is no risk of sovereign default, India’s exposure and vulnerability to the moods of the global financial markets as well as the policy changes in the US is hugely greater now than in 1991. Inflation, already in double digits, is likely to get far worse as the Rupee depreciates, and will likely have political repercussions in this election year. High unemployment (of the educated and the illiterate), which has been an abiding concern since the early reform days, is going to persist and get much worse, as the economy slows down further, downsizing becomes the norm, hiring stops, and layoffs rise. All indications are of a spiralling down of economic activity as investment shows no signs of reviving, especially given the stagflationary environment and receding domestic demand, as disposable incomes fall, or fail to rise fast enough.


