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Friday, May 06, 2011

Volatility and investments

As the markets are getting more volatile by the day, we turn our focus to impact of this volatility. In general, volatility is enemy of long term investment. It is a friend of aggressive trader when luck is favourable. It promotes, a sort of, alignment towards short term.

Current macro climate in India is sensitive to such short-term focus. India needs long term investments that should boost supply to accommodate the growing demand. Such investments are are difficult to conceive during times of high volatility. The attempt of policy-makers should be to create pockets of certainty in areas that can be controlled. Particularly, monetary policy, fiscal policy and government regulation need to demonstrate continuity and stability thus not contribute to the already existing volatility.

China has successfully shown policy continuity and stability that promotes such investment. India needs to learn from China in this regard.

My book "Subverting Capitalism & Democracy" is available on Amazon and Kindle.