That figure is now down to 1.3 per cent. Second-quarter growth in the US has faltered, and wage pressures have been building up in the American economy, one reason for Alan Greenspan's warning on incipient inflation.

Consumer-spending data, however, continues to show strong growth. But consumer confidence has been built on the wealth effect due to rise in stock prices, and US household assets are estimated to have increased by thousands of billions of dollars on paper since 1994. Pricking the Wall Street bubble will, therefore, result in a sharp reduction in household spending, sparking off a recession. Nor is the slowing down of the US economy the only reason for worry.

There are as yet no signs of a reversal of the Japanese recession. Thesouth-east Asian and Korean economies are contracting. And the continued weakness of the yen, coupled with a US slowdown, will increase the temptation for the Chinese to devalue. Only Europe seems to be on a firm wicket, although worries about inflation and a strong pound are hurting Britain.

It is hardly necessary to spell out what all this means for Indian exports. Caught between the pincers of devalued currencies of competitors and a slowdown in world demand growth, Indian exports are in deep trouble. If money flows out of stocks, the prospect of FII outflows from emerging markets looms large. But the domestic economy continues to be relatively insulated, and increased investment spending by the government is necessary to counter the depressing effects of the global slowdown.