In theory, the arrival of a new year and the opening days of January are meant to signal hope, optimism and renewal. Life and politics don’t always pan out that way. India begins 2012 with trepidation, as it has done several times in the recent past, but also with a new form of trepidation. The gloom of a December or of the final weeks of a year has often flowed into the next. This has happened at least three times in the past 12 years in India. The year 2002 arrived about a fortnight after the terror attack on Parliament, with a war already underway in Afghanistan and troop mobilisation and public anger suggesting the likelihood of an India-Pakistan conflict as well. There was less danger of a formal war in 2009, but the 26/11 attack about a month before the new year began had made India seem really small and vulnerable. And it patently had an impact on our public and political morale. In 2000, the hangover on January 1 was not so much a result of a post midnight jamboree as of the surrender in Kandahar the previous day and the release of three terror suspects in a ransom game that found India thoroughly trumped. All of the previous examples are related to security concerns. However, if the mood is sombre in the opening lap of 2012, it is not because of fears of terrorism — those are there in the mix, of course, but not quite on top of the mind — as much as due to the economy. In the second half of 2011, India’s economic indices began to sink rapidly. The stock markets, the rupee’s value, the export earnings and FDI inflows: all of these declined. Investment in new capacities not just stagnated but actually contracted in some sectors. Overall, there was pessimism and worry about the future of the India story. India faces perhaps its most severe economic challenge since the beginning of the liberalisation process in 1991. For an entire generation, this is unprecedented. Especially for those who came of age in the past decade and have taken a booming job market and at least eight per cent growth rates for granted, this is a big shock. No doubt, it will have an effect on politics. Indeed, the efficacy and energy with which the government responds to the economic situation may well be the touchstone that decides its survival. Given the policy paralysis and defeatism that gripped the UPA government in 2011, an observer cannot offer much hope. The likely prognosis, one increasingly popular in the corridors of power in Lutyens’ Delhi, is guided by the belief that the government has lost its nerve and that despite his best intentions Prime Minister Manmohan Singh has lost control of the economy. In this view, the end of 2012 will only take us closer to a midterm election, if not actually host one. It is a sobering thought that there is much that can go wrong with this government even now. The 2G scandal may not have claimed its final target in the Union cabinet. The pressure will expectedly mount on the prime minister in the coming months — how much did he know, when did he know, what did he do to stop his former telecom minister implementing a wrong-headed policy or, at best, introducing distortions in a chosen policy? That aside, should the Congress do poorly in the Uttar Pradesh elections in May 2012, it will be a setback for Rahul Gandhi, the party’s future face, and leave it contemplating question marks in the run-up to the 2014 Lok Sabha election. The election of the next president (July 2012) and vice-president (August) will then become an excruciating priority, given that the Congress and UPA may or may not have enough votes in the electoral college — which comprises national parliamentarians and state legislators, each of them with a weighted ballot, depending on the size of electorate — to easily send a trusted nominee to Rashtrapati Bhawan. If this scenario plays out, the government will have no breathing space for economic reform or almost any sort of clear-headed policy. It will be in fire-fighting mode till late summer and inevitably find itself bruised and bloodied. After that it could take only an accident to bring the edifice down and an early election could be upon us, maybe 12-18 months before the scheduled May 2014 date. Is there an alternative and a happier scenario for the UPA government? What if the bad news on the economy has peaked? In December the Reserve Bank halted the interest rate surge of the past 20 months.

By March or thereabouts, interest rates may begin to come down. This will reverse some of the negative mood in business, albeit gradually. A loose monetary policy in Europe — where central banks will essentially have to print notes to somehow kickstart economic activity — could see inflows into the Indian capital markets and make the Sensex look up. All of this may not mean much for the real economy in the short run, but could nevertheless boost sentiment. That aside if, as the prime minister insists, FDI in multi-brand retail and in civil aviation too perhaps will be pushed through early in 2012, then the newspaper headlines could seriously change. Finally, of course, much will depend on the Congress’ performance in the Uttar Pradesh polls, where it won 22 seats out of the 403 in 2007 — but the party projected to do better this year. The question is: how much better? If it goes up to, say, 35 to 40 seats or so then it isn’t much of an improvement. If it climbs to 70 odd, as some opinion polls are suggesting, then the party will have definite cause to celebrate. It could find itself forming a government in Lucknow — even if as part of an alliance — for the first time since 1990. A thumbs up for Rahul Gandhi in Uttar Pradesh, combined with the beginnings of a good news on the economy front, may have the Congress smelling its chances. It could conclude that the next Lok Sabha election is still salvageable. True, that would entail a massive reversal of trends and constitute a complete turnaround from things as they stood at the end of 2011. Even so the UPA government will win crucial time and the fears of a mid-term parliamentary poll will recede. So which of those two scenarios — the Congress tumbling further and further or the Congress looking to recover at least on some grounds under a new leader — will hold true? Making any prediction in January is absolutely hazardous. Yet by the middle of 2012 we should have a definitive answer. The views expressed in this column are of the author alone.