Mai-baap sarkar needed

Looking at the situation in India today, one is reminded of the words of American humourist Will Rogers. “We have plenty of confidence in this country, but we are a little short of good men to place our confidence in!”

There seems to be no one in the government that the markets can place their confidence in to revive the economy. The fact is that the present economic crisis in India is a self-inflicted one and not caused by global factors, as the government would have us believe. If we have to salvage the growth agenda for the economy, we need – as the old adage goes – a Mai-baap sarkar (a government that is like a mother and a father); albeit, in a totally different way than understood by the political class.

Just think of the roles a mother and father play in a traditional Indian household. The mother is the one giving comfort and boosting the confidence of her children when they are feeling down and out. The father, on the other hand, is supposed to be the disciplinarian; pulling up the children when they get too exuberant, ensuring that they do their homework and other chores.

A government has to play similar roles – but in a counter-cyclical manner. So, when the economic cycle is on the uptick, the government – like a ‘father’ should be strict and take steps to prevent a bubble forming. When the economic cycle turns and things get bad, you need the government to be the ‘indulgent mother’ and take steps to boost economic confidence. Unfortunately, what is happening now is the reverse.

To kick-start growth, we need government policies that encourage investments in hard and soft infrastructure, remove regulatory uncertainties so that much-needed foreign investments can flow into the country leading to productivity enhancement and more efficient use of resources. Economic history has proved this is the only way to achieve balanced growth and improvement in the economic well-being of the people.

Our current cycle of economic populism, coupled with increased corruption and deterioration in the regulatory environment, will only lead to a further drop in investment activity, leading to slow growth before degenerating into a vicious circle of high inflation, unemployment, poor savings, low investments and social unrest.

But every crisis is also an opportunity. It only depends on how you look at the situation. Take the rupee for instance. It has lost a fourth of its value in the last one year. But this fall has provided us with another interesting opportunity. Today, we are far more competitive than China. If only the government seizes this opportunity and takes the right kind of policy decisions, we could transform India into a manufacturing hub to rival China. This will have long-term upside for the economy.

It remains to be seen if the government has the necessary political will and sagacity to turn this crisis into an opportunity. Following some signals given out over the last few days, much was expected from Pranab Mukherjee in his last policy announcements as the finance minister of the country. However, these turned out to be damp squibs.

With Mukherjee’s departure, the Prime Minister has taken the finance portfolio. Market analysts, those eternal optimists, are hopeful that Manmohan Singh will take action to turn this crisis into an opportunity. In the off-chance that it happens, we could see a considerable uptick in market activity.

But the fact is that the present regime’s record in the last three years belies any such hopes. Most likely, the current situation of slide and short-termism in economic decision making will continue. If that happens, do not expect any major gains in the market.

The author is president and head-wholesale capital markets, Edelweiss Financial Services