Economists of all schools of thought are agreed that psychological factors and intangible influences play a role as significant as hard facts and policy prescriptions in determining the level of confidence or scepticism as regards the credibility and competence of established structures and economic players.

For instance, US President Franklin Delano Roosevelt’s greatest success in denting the impact of the first tsunami-like wave of the Great Depression was by his rousing declaration in his very first address to the nation, “The only thing we have to fear is fear itself”. In order to generate trust in the banks which were collapsing, he made his famous gesture of depositing his own savings in a nearby bank.

In India, unfortunately, there is no one I see who has a flair of this nature to sustain the people’s faith in economic decision-making. On the contrary, the general impression resulting from the public pronouncements of those in high official pedestals is one of their being unsure of the exact nature of the problems and their solutions.

DISENCHANTMENT

At different points of time they come up with different bogeys and straw men, palming off on the public breezy notions of their own unsupported by convincing arguments. They do not realise that the people, being close to ground realities, know better and are not taken in by the vacuous verbiage.

Inflation is a prime example. A number of catch phrases, projections and predictions have made the people none the wiser. Speaking in mid-December, the Government’s chief economic adviser, Raghuram Rajan said, “Although there could be some rise in inflation numbers now, they should start easing from January because of the high base effect…there may be a blip up now but as we go into the next year some quietening is to be expected”.

Will somebody translate please? In any case, there has neither been easing nor quietening as far people can see.

Adding to the people’s disenchantment is the fact of some of the so-called ‘experts’ inducted into pivotal positions in government being totally unfamiliar with grassroots India. They go about either indulging in banal nostrums or dishing out arcane jargon which does not at all bring any clarity to the understanding of the situation.

Let me illustrate. Recently, Raghuram Rajan came out with ‘seven mantras’ to buoy up investor sentiment. We expect a high authority such as he is to propound something insightful and incisive; instead, what he listed was common knowledge and did not need him to recount: Better infrastructure; lower transaction cost; streamlining of procedures; making labour laws industry-friendly; easy access to finance, especially on the part of micro, small and medium enterprises; a strong competitive authority; and public-private partnership.

DISPUTABLE NEXUS

The question of questions that he did not answer was on the lines of action the Government had taken, or would be taking, to bring about the intended outcome. Take the point about labour laws. There has been a lot of talk about ‘labour market reforms’. This is nothing but shorthand for giving employers the right to hire and fire at will, and toning down their obligations under industrial relations legislation. What is the position of Rajan or the Government on this specific demand of industry, particularly foreign investors?

Now come to current account deficit (CAD). Raghuram Rajan, C. Rangarajan, P. Chidambaram et al have been asserting that increased foreign direct investment (FDI) is the antidote to CAD.

CAD is the quantum by which a country's total imports exceeds its total exports in terms of goods, services and transfers. Gold imports, burgeoning oil bill and falling exports are said to be the reasons behind India's high CAD. FDI may to a certain extent boost exports, but there is no evidence produced from official quarters validating the assumption that it will compensate for the outgo on gold and oil.

Last year, the FDI flowing to India was $46 billion. P. Chidambaram puts the future likely annual FDI flow to be $50 billion. The effect of an increase of $5 billion in FDI can only be minuscule. To me, absent sufficient data, the FDI-CAD nexus is at best disputable, and at worst a red herring.

In short, persons in positions of authority should quit peddling oracular banalities if they have to retain the people’s respect for their knowledge and experience.

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