A full reading of the Economic Survey for financial year 2019-20
makes is unambiguously clear that the policy advisory organ of the incumbent
government is overwhelmingly dominated by the 'market economists'. These economists
want the government to follow the global best practices to make India a vibrant
market economy.
Hitherto the domain of Indian policy making had been
predominantly occupied the left leaning development economists, who focused
more on the government's role in poverty alleviation and inclusion. The policy
documents therefore mostly spoke about the government achievements and future
targets.
But now, not only the jargon like Wealth creation, private
enterprise, free market, decontrol, pro business, stock market, privatization,
creative destruction, etc has recently entered the policy corridors of the
Indian government; the formats of the policy documents have also changed their
appearances dramatically. The colorful graphics, literary quotations, statistical
models, global comparisons, elaborate bibliography, etc make the boring
documents like Economic Survey a thematic dissertation made by a team of
research scholars.
The problem however is that the political establishment is not
fully in synch with the policy advisory organ. The political leadership may be
attracted to the idea of laissez faire but usually the political
compulsions are seen dominating the behavior. This two dimensional incongruence
- (a) between policy advisory and political behavior and (b) between
leadership's aspirations and political compulsions - has created humongous
expectations gap in the markets. The documents like Economic Survey and vision
documents published by the NITI Aayog raise the expectation levels of the
financial markets to very high levels. Whereas the delivery in terms of actual
policy statements usually fails to meet the market expectations leading to
disappointment amongst market participants.
These frequent episodes of inflation and deflation of
expectations have led to weakening of the faith in policy framework. The market
volatility around important announcements like Union Budget, Monetary Policy
Statements must be seen in this context.
The key for investors therefore is to stop anticipating the
policy changes, especially on the basis of the statements made by the policy
advisory organs of the government; statement of intent made by the political
leadership; and thoughts expressed by the experts considered close to the
corridors of power. The investment strategy must be based on the crystallized
policy framework, fully and unconditionally accepting that wishes of the market
participants are not a significant factor in the actual policy making.
The investors also need to notice that in recent past almost
every "former policy advisor" has written forcefully about what the
government is doing wrong, and how the current economic slowdown could be
reversed without much pain.
People like Arvind Subramanian (former CEA), Arvind Pangharia
(Former Vice Chairman NITI Aayog), Raghuram Rajan (Former RBI governor),
Subhash Chandra Garg (Former Finance Secretary) have written and spoken
extensively about the measures government should take to make course correction
and also the things government is doing wrong, almost immediately after
relinquishing their respective offices.
A reasonable assumption is that these people did not attained
enlightenment overnight and had these thoughts while still being in office. A
corollary would be that either the environment in office did not permit them to
express their honest opinions or the political establishment did not care to
follow their advice. In either case, there is no basis for an investor to
believe what the Economic Survey and NITI documents present. After reading 941
pages of Economic Survey, I have realized this. You can trust me or try it
yourself. I leave that to you.
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