Opinion:Disconnect between India's politics and the markets

Politicians should realise that sustaining populism depends also on financial markets.

The government's decision to finally push for the passage of the land acquisition Bill, along with the approval granted by the Lok Sabha to the food security Bill a few days earlier, raises certain questions about the orientation of India's politics. In particular, financial markets - whether for foreign exchange, stocks or bonds - are convulsed currently, as foreign money drains out and confidence in India's economic future takes a hit.  Yet, instead of passing urgent measures to prop up such confidence, New Delhi is focusing on measures that are unpopular with many market participants, and with corporate India.

This disconnect is not new. Manmohan Singh himself, in his stint as finance minister, famously said he "lost no sleep" over the rise and fall of the markets. The current finance minister, when he was in the post earlier, had said he was more concerned about the reaction to his actions in New Delhi's Khan Market than in the stock market. And in 2000, when the markets panned then finance minister Yashwant Sinha's Budget, the BJP stalwart scolded them in Parliament, saying it was "silly behaviour", "sanity" should dawn on them and they should "behave more responsibly". He resoundingly declared: "I am not the finance minister for the Bombay Stock Exchange." Even reform-minded politicians claim that market responses have nothing whatsoever to do with their choices.

However, even the most politically salient programmes need a well-functioning economy; and it can be nobody's case that the loss of confidence in New Delhi that suffuses the markets today is healthy, or should not be repaired. Yet neither side seems willing to bridge the divide. Consider the land acquisition Bill. It is certainly overdue, and its enabling power is essential to get investment going. But it is far from perfect, as many industry representatives have pointed out. Although made much easier than in earlier drafts, the purchase of agricultural land is still too difficult and tied up in too much red tape. That would delay the much-needed recovery. Further, the Bill has retrospective effect with respect to certain already-taken decisions - a facet introduced after an all-party meeting demanded it - and that will naturally lead to confusion, disputes and delays. On the other hand, industry has traditionally made maximalist demands for land; far too often government grants of land to industry have been partly real estate plays. In addition, land costs have been unsustainably low so far - by some estimates, around three per cent of project costs on average.

The fact is, however, that the modified, much-discussed but still problematic Bill has been tabled now. Parliament has spent this session on political protests and two Bills unpopular with investors, instead of on any measure that they can whole-heartedly support. The UPA's entitlement raj extends to the private sector - the government believes that India is entitled to investment. Sadly, investment sentiment is fragile. Soothing statements won't repair the damage that has been done already. Instead, if this divide is to be bridged, it is up to New Delhi to make the first move; after all, investors have been relatively patient so far. Ensure that the focus of debate in Parliament moves to passing the several overdue investment-friendly laws. The biggest, by far, would be to introduce the constitutional amendment for the goods and services tax. And the Bill liberalising the pension sector would also give markets something to cheer about. But prioritising these will require politicians to realise that sustaining populism depends also on financial markets.