Trying to talk up the economy with cheer and bravado will not work. We need more than mere tinkering with finance and trade policies.

Consider it a crack of a whip or a strong shot of energy boosters into the weary and listless world of policymakers, but whatever the metaphor, the Prime Minister’s assumption of the Finance Ministry last week seems to have unleashed a spate of aggressive optimism.

As if responding to Dr Singh’s exhortation for some “animal spirits”, even policymakers not known for their expertise on the economy are lending a hand to lift the pall of gloom settling on the economy.

Recently, at a CII-Coimbatore zone-sponsored event, the Minister for Corporate Affairs, Mr M. Veerappa Moily, assured his audience that GDP growth of 6.5 per cent was a reflection of the country’s strength, not its weakness.

Really? That was not how a slippage in growth rates’ expectations and forecasts had been viewed in New Delhi. Around Budget time in February, Mr Pranab Mukherjee, then Finance Minister, expressed disappointment at 6.9 per cent growth.

As figures for key industrial indicators lent credence to a real slowdown, policymakers seemed to retreat into a shell of furtiveness…till Dr Singh took over.

Suddenly his animal-spirits burst had its effect: predictably the first off the block was the indefatigable deputy chief of the Planning Commission who solemnly declared the need for urgent action to boost investor confidence; as if on cue the exiting chief economic advisor to the government , Dr Kaushik Basu, promised things would get better by October — after cautioning audiences at his Carnegie Endowment lecture about the nail-biting prospects for India over the next two years, that appeared like a real leap of faith.

Now, of course, Mr Moily delivers the punch line: Read my Lips! 6.5 per cent growth is Good!

ON whom, to what end

Perhaps it is; perhaps the animal spirits bit has worked its inspirational magic. But the point is: On whom and to what end? Clearly the PM/FM has had a great effect on rallying policymakers round the flag, so to speak.

It’s too early to say if his clarion call will work with stakeholders, most of whom appear pretty cross-eyed gazing up at New Delhi; then they turn to the RBI and see red for those interest rates that won’t drop.

What we have got is a glimpse of the UPA policymakers’ USP, what they do best when they are not tripping over their own feet with policies carelessly stitched together: breezy rhetoric. Dr Singh the Finance Minister has succeeded where Mr Singh the Prime Minister could not: for a while he has pump-primed key policymakers.

Whether that leads to some positive action to revive an exhausted organised sector is quite another matter.

At this juncture simple “positive thinking” will not revive those animal spirits; gestures at reform may temporarily revive a capital market that is more attuned to global cues; which is why it’s like a manic depressive with attitude.

The tired song

The only real action the UPA can fall back on to be counted as the government that works, is ‘FDI in retail’, but it’s not up to crack steering this past a morbidly suspicious Opposition.

Perhaps the conviction in the scalability of its economic benefits is lacking among treasury benches; the UPA policymaker cannot yet persuade the ordinary Indian (and this includes, of course, the Opposition) that a WalMart’s entry won’t help American suppliers more than Indian.

So what does the UPA or the new Finance Minister have to offer the organised economy, in real terms?

Not much, other than asking the RBI to reduce interest rates in the hope that will appease organised economy stakeholders. Right now the RBI is not willing to play the appeasement game.

Its interest rate policy has not caused the slowdown as much as stakeholders, partly blindsided by New Delhi policymakers, would like to believe.

In an inflationary situation, caused by global circumstances and policy ineptitude, the RBI stands out as an exemplary model for commitment to its mandate, more so under circumstances of flippancy and weary helplessness in New Delhi.

US ripples

In the meantime, symbolism prevails: the Commerce ministry extends “sops” to exporters at a time when world trade in general is shrinking; it wants non-tariff barriers in EU and China to pharma exports removed against a backdrop of increasing protectionism.

The US administration, having tasted blood with the Supreme Court rulings on its healthcare reforms, will now pitch for increasing protectionism and attack “job exports.”

A report in The Wall Street Journal of June 30 quotes Mr Barack Obama thus: “We do not need an outsourcing pioneer in the Oval office.” He was referring to his Republican rival, Mr Mitt Romney, who is accused by Democrats of having facilitated outsourcing as governor of Massachusetts and as a private equity investor.

As counterclaims fly, the debate will intensify over the relationship between trade and growth, with the Democrats pitching for growth-led trade. At a time when the US economy is still fragile, evidence of corporate profits through job outsourcing will touch a raw nerve among Americans.

Where does that leave the Indian policymaker? Contrary to the perception created by the spurt of optimism following the new FM’s urgings, it is as Prime Minister that Dr Singh will have to enthuse his colleagues to think and act as a team.

A good start would be for them to understand just how grave their own conditions are, considering 2014 is a short way off.

The Indian voter in the village will not worry about the GAAR amendments that upset that narrow sliver of the organised economy; instead of spending time mollycoddling foreign investors by permitting them greater access to government bonds and exposure of Indian companies to ECBs (thereby increasing India’s public debt), a perspective on improving the domestic economy would help far more.

And, by the economy one must mean the national economy with its disruptions, fissures and disparities, and not just the organised section with its voracious appetites.


(This article was published on July 3, 2012)
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