While the impact of current hike in food and fuel prices has jolted Pakistan’s economy in a big way, it does not appear to have hit India the same way. The latter looks to have managed well in controlling the effects of the global crisis by taking certain stringent measures.

In respect of inflation, India has been affected but its position is comparatively better. Its inflation rate was estimated to have reached 11.4 per cent in June, while that of Pakistan’s touched the record figure of 21 per cent, with food inflation rising to 30 per cent. Withdrawal of subsidies has caused an unprecedented surge in the prices of petrol, diesel, gas and electricity – about 50 per cent rise in four months.

India raised fuel prices in June by only 10 per cent with a pledge not to make any more raise till October but it also cut import and excise duties on oil products to ease losses of state-run oil firms which have to sell fuels at heavily subsidised rates.

Yet, it is amazing that the Indian economy is seen to have run into serious trouble as noted by some leading investment and rating entities. The cover story of BusinessWeek gives a pessimistic view of the Indian economy hinting that India’s success story is coming to an end and that its growth is on decline for a long time to come. The soaring oil prices are an instant reason behind much of the crisis it faces today. India imports 75 per cent of its oil to meet the demand which has grown extraordinarily over the years as its economy expands. The government also subsidises 60 per cent of the price of such fuels as diesel (which Pakistan has decided to pass on to the consumers from July).

In the past month, India joined the list of the “wounded” economies, according to Merrill Lynch. The foreign investment has started fleeing, the rupee is falling, and the stock market is down over 40 per cent from the year’s highs. It expects Indian growth to slow down to seven per cent this year. The country’s hard-earned investment-grade rating will soon be lost and that “the gilded growth story has come to an end,” according to Andrew Holland of Lynch.

Just six months ago, India was looking good. Annual growth was nine per cent, corporate profits were surging by 20 per cent, the stock market had risen 50 per cent in 2007, consumer demand was huge and local companies were making ambitious acquisitions, and foreign investment was growing. Nothing seemed could stop India’s onward march.

Meanwhile, Economic Times of India has reported that high inflation, rising global oil prices and fears of a US-led global slowdown were forcing Indian economists and key policy makers to revise their short-term growth forecasts downward. The planning commission and PM’s economic advisory council have, for instance, revised the forecasts to about eight per cent for fiscal 2008-09.

In 2007, when inflation was as low as three per cent, Standard & Poor’s Subir Gokarn had suggested to New Delhi to start cutting subsidies. But it refused to do so. It would badly hit the million of consumers, was the argument. Instead, the Congress government spent $25 billion on waiving loans made to farmers. However, these expenditures are seen to be adding $100 billion a year or 10 per cent of the GDP to the national bill. The government’s official debt, which had dropped below six per cent of GDP last year, is now closer to 10 per cent. In the neo-liberal scheme, this was bad planning.

According to Gokarn, the government has missed “key opportunities” to fix the economy. One such opportunity was Manmohan Singh’s plan to build 30 Special Economic Zones (SEZs) to be run by the multinationals. It stands virtually suspended because New Delhi has not sorted out how to acquire the necessary land, a major issue in both urban and rural areas. The land issue can provoke a major social and political upheaval.

Multinationals hate fertiliser subsidies which they say is distorting India’s agriculture and making it technologically laggard and, thus, woefully unproductive. Their demands like strengthening the legal system and adding more judges to the courtrooms to protect their investments and intellectual property rights have been ignored by Congress-led government, probably at the behest of the Left Front which is also behind blocking SEZs projects.

A June 16 report by Goldman Sachs says India has fallen to the bottom of the four BRIC nations (Brazil, Russia, India, and China) in its growth scores. The report states that India’s rice yields are a third those of China and half of Vietnam’s. Although 60 per cent of its labour force is employed in agriculture, farming still contributes less than one per cent to overall growth. The report urges India to improve governance, control inflation, liberalise its financial markets and improve infrastructure, the environment, and energy use.

More worried are India’s businessmen, for whom there’s plenty at stake. Lack of adequate infrastructure, under-developed bond market and high prices for real estate and commodities are causing them structural impediments all over. Such constraints on growth are having an impact on corporate earnings. Merrill Lynch predicts just ten per cent growth in corporate earnings this year, compared to the previous year’s 20 per cent. This slowdown makes it less attractive for foreigners to invest in India’s stock market. Already this year, foreigners have taken $5.5 billion out of the market, out of $19 billion they invested last year.

Congress-led coalition regime defends its four year reign saying the nine per cent growth for four years in a row is something unprecedented. Sanjaya Baru, media adviser to Prime Minister Singh, however, admits that there is a fiscal problem, but “there’s a price to be paid for coalition politics. So having growth drop from nine to seven per cent is not grim.”