KEY POINTS:
It was Stephen Roach, the legendary economic guru of Morgan Stanley, who pointed at the dark cloud hovering on the horizon.
As the World Economic Forum (WEF) kicked off its annual jamboree in New Delhi the gold rush mood was unmistakable. There were more delegates flocking to India than ever before and they had come from all corners of the world to sniff out the opportunities.
"We got 750 delegates and then we had to close the lists a few weeks ago," says Tarun Das, chief mentor, Confederation of Indian Industry, the country's most powerful business organisation, which hosts the three-days of corporate networking in partnership with the WEF that began on Sunday.
But it was Roach who brought it all down to earth. Roach reckons that the United States may already be in a recession and that's going to be felt around Asia and the world.
"The global outlook is very challenging. I don't buy the argument that the Asian economies have decoupled from the US," he said, pointing out that India couldn't escape the effects of a global slowdown even if it is a very domestically focused economy.
Just an hour earlier, India's Finance Minister Palaniappan Chidambaram had struck a very different and bullish note. India, he reckoned, could "keep this high economic growth continuing for the next 10, 15, 20 years".
But Chidambaram's brave words don't entirely capture the mood in India's corporate world. Everyone's getting a bit nervous and the latest growth figures have added to their fears. Sure, the quarterly growth figures were quite splendid at 8.9 per cent but there was enough to worry about when you broke down the numbers.
The biggest worry is that manufacturing growth is down to 8.6 per cent. That sounds good enough but it's way below the sparkling 12.7 per cent turned in last year when industry was firing on all guns.
What has gone wrong this year? The answer is plenty and it's slowly beginning to percolate through the system. For a start inflation has forced the Reserve Bank of India to raise interest rates five times since January. High interest rates are now taking a toll on industries like two-wheelers and automobiles, where the brakes are slowly beginning to take hold.
Take a look at the mighty two-wheeler industry. Back in the 1980s it was reckoned as the surest bet in the country and Japanese giants like Honda, Yamaha and Kawasaki came racing into India, firmly convinced they couldn't go wrong if they stayed on the road long enough. Here was a country where people went about on bicycles. It wouldn't be long before they graduated to motorcycles.
Sure enough, India is now the world's second largest two-wheeler market - no prizes for guessing that China is the largest - making over 7 million machines a year. But in the past year the two-wheeler industry has proved that there's never anything like a sure bet and that your spark plug can blow just when the going is good.
The Indian economy has been booming for the past two years and double-digit growth is the order of the day. And as millions graduate to a middle-class lifestyle you'd think that the motorcycle industry would be out in front on the road.
You'd think wrong. Two-wheeler sales have been in the low single digits. Bajaj, the Indian two-wheeler giant, has even reported its sales dipped by 2 per cent in November from the same time last year. Another motorcycle company, TVS, has had falling sales for the past nine months.
Why are the bike manufacturers skidding when they were expecting an open highway? They've been hit by a double whammy of increasing prosperity and rising interest rates. At one level, the prices of second-hand cars have been falling and some families who would have been riding two-wheelers (in Delhi it's a common sight to see a husband and wife and two children defying all the laws and riding a motorcycle or scooter) are now into cars.
At another level, rising interest rates resulting in costlier loans have hit two-wheeler buyers harder than more affluent sections of the population. So sales have been falling ever since early 2007. It's a similar story in home loans, where people are thinking twice before borrowing money. Some banks report home loan growth is down from about 33 per cent to around the mid-20s. That's partly because of rising interest rates and also because land prices have soared into the stratosphere, making it tough for middle-class buyers.
If that's not enough there's the soaring rupee that's battering a range of industries - including sensitive sectors like textiles with its millions of lowly paid workers. Take a look at what's happening in Tiruppur, a small south Indian town that's famous for its knitted cotton products, where thousands have been laid off in the past two months. And remember that this is a country with no social security of any sort.
Then, there are the fast-moving stars of the infotech world. In the past six months the Bombay Stock Exchange Index has shot skywards but the infotech sector which once led the way hasn't been invited to the party. The rising rupee is cutting into profits and the brightest brains of the high-tech industry can't figure a way out.
Azim Premji, the boss of Wipro, one of India's top infotech companies, reckons that growth will fall from 32 per cent to about 29 per cent. Those are still very healthy figures but the stock market has been dismayed by how vulnerable the software companies are to the rising rupee.
Premji says India's software industry will need to come up with innovative solutions to shoot its way out of trouble.
Let's get it straight: the Indian economy isn't about to come to a screeching halt. The Finance Minister's prediction that the economy should keep growing for 20 years should still hold.
But the possibility of a temporary slowdown is looking more imminent than ever before. A lot depends on what unfoldsin North America. Will the impact of the sub-prime crisis be felt in towns like Tiruppur? Roach isn't offering any bets and nor is anyone else, but they are watching and waiting with their fingers crossed.
