Tuesday, May 15, 2012

Investors are at the gates - When will India open them?


One of the big problems driving Indian inflation is lack of investments. The investors are here; the question is where is the government. 

How to get investments?
First rule of investments is that higher uncertainty should be compensated by higher return potential of investment. If the return available from the Indian market is given then government can increase investment by reducing uncertainty. 

Indian government is doing exactly opposite.
In general government is failing on many levels and the Indian courts are able to stem the erosion in some areas but in critical policy areas the constitutional arm of government, the RBI, is not empowered to do much. And it has done all it can. Sadly RBI cannot undo what 8 years of inaction has borne to bear. 

Policy nuisance 
The current UPA government came after 5 years of NDA rule. The NDA government had good alignment of strategic direction and policy follow-up. In the first term,  the UPA government was befuddled with coalition issues thereby creating policy ambivalence. However the developmental inertia of previous NDA terms proved beneficial in hiding the policy ambivalence. However the second term is characterized by lack of strategic direction in policy. The policy, rather strangely, is moving in the opposite direction in general. The haphazard manner of conducting policy has confused investors, both domestic and foreign. If the government just stops this policy nuisance we can hope to hobble along a reasonably correct path.

Knowing Congress - future is bleak
The most reasonable forecast is bleak. The only possibility is that a looming crisis may kick the government into action. Just like Churchill's America, at the very last, India will do the right thing. So here is waiting for the crisis, hoping for the dark clouds to see some silver lining...