All Hopes On PC Now

FIIs pumped in a net Rs 11000 crore in Indian equities during the month of August 2012 – the highest over the past six months. Their optimism, it seems, was based on expectations of the government moving ahead on the policy reforms front and the easing of the monetary policy. Their total investment has touched a net of Rs 63070 crore in the equity market and Rs 24518 crore in the debt market so far in FY13.

For whatever reason it may be, this fund pumping clearly indicates that FIIs are still very optimistic on India’s growth story. Even though the GDP growth came down to 5.5 per cent from 8.5 per cent in 2009, they expect it to turn around as soon as the government’s decision-making picks up. Laggardly decision-making on the government’s part is the biggest drawback of the management of our country’s affairs today. This particularly includes ineffective management on the part of the Prime Minister, who has no control over his own colleagues and bureaucrats.

Deepak Parekh, Chairman, HDFC, recently summarised his thoughts on Coalgate in the following observation, “No one wants to take a decision. Only pushing of files is happening. How will India progress? Do you want to see a collapse in our system? I think it is very critical that we find alternative ways rather than resort to de-allocation of all coal blocks.”

This is an absolute fact. No one seems to be willing to take a decision. Even the most transparent and honest people aren’t willing to do so. This reflects on the dark reality of a clear lack of leadership within our government, where even the Prime Minister has failed to take critical decisions in the most important cases, whether it is the 2G spectrum scam or the Commonwealth Games scam, followed by the Coalgate episode now.

Hope, however, doesn’t die so easily. The shifting of Chidambaram back to North Block has sparked a new ray of optimism for us. Chidambaram is a man who can be expected to be in a position to lift our economy by taking some quick actions on various matters pending for decision. Within just a month of coming back as the Finance Minister, he has already laid out a road map for the revival of the economy by taking some quick decisions, which include:

1. Deferring GAAR for three years as per the recommendations of the Shome panel.
2. Setting up a three-member panel which will present a report in a few days and which will lay down a road map for fiscal consolidation.
3. The SEBI announcing new rules to boost the mutual fund business.
4. Directing banks to make consumer durables and auto finance EMIs more affordable to improve sales.
5. Looking at simplifying education loan norms.

All in all, Chidambaram has been directly or indirectly conveying a message to the RBI of the need to reduce interest rates to boost the economy. I am sure that he would soon put an action plan in place to set those large projects rolling which have been stagnant for quite some time now for want of effective decision-making. Chidambaram’s re-appointment as Finance Minister has raised a whole lot of expectations about the modification and fine tuning of policies finally happening wherever needed.

Though Chidambaram is expected to do his job well, the Prime Minister has to take a strong initiative to see that his ministers take their jobs seriously by not showing indifference in decision-making where needed.

As I have stated earlier too, the Prime Minister has a few more months left to take some hard decisions, and it seems that he is trying to do that job through the Finance Minister. But he has to be supported adequately in his efforts, and hence other ministers need to be directed to take quick decision to get the economic growth rolling once again.

At present, the GDP growth is at its lowest. GDP growth at 5.5 to 6 per cent is normal for our economy, and a slightly better effort on the government’s part will result in an immediate improvement of at least one to 1.5 percentage points. FIIs are waiting for such action by the government and expect the GDP to grow by at least 7.5 per cent by March 2013. They are expected to shore up their investments in the Indian market on that expectation. All this points to one major fact – the markets are expected to do well in the coming months.