First and among the most defining events of the year would have to be the change of government at the Centre. Most of us, including the victors and the vanquished, were quite surprised at the outcome. Stockmarkets reacted fearfully at first, borne more out of uncertainty than any fundamental news about the new government’s new policies. Left support of the government also spooked investors, particularly overseas investors, before the markets came roaring back later in the year.
The new government so far has followed sensible policies, by and large, and the hope is that such policies will be continued and the reform process deepened further. In this context, it was unfortunate to note the sad passing away of the original reformer, the obdurate PV Narasimha Rao. His now famous line that “not taking a decision is a decision in itself” is an articulation of a strategy that successive Indian politicians have used effectively.
The second theme of the year is the rise and rise of the stock markets. Fuelled by a surge of FII money, over $8 billion, the market broke decisively out of its previously established and tested trading bands. Is the surge sustainable, or will the markets correct again sometime in the coming year is the million—no, billion-dollar question. And here I would not hazard an opinion. Then there was the familiar saga of infighting among some of our corporate families. When the stakes are high and both parties feel that they have a rightful claim to some, or all, of the legacy of their parents, and these respective aspirations unfortunately are at variance with each other, then problems result. We will have to wait and see how these corporate/family issues do get resolved.
• The new government has followed policies that are, by and large, sensible
• The stockmarket broke out of its established and tested trading bands
Another big event that is still unfolding is the calamity of the tsunami. Every once in a while, India experiences one of these calamitous events—be it an earthquake, a cyclone, a tsunami, or a flood. Several thousand people typically die in such happenings. Yet, we carry on from year-to-year with nary a thought to develop better disaster management systems. We read stories of the army assisting rescue efforts, of people blaming the administration, and small sums of money being announced for those rendered destitute. Does this money ever reach the affected or does it simply vanish, as does so much else meant for the downtrodden in India? Sombre thoughts.
But the biggest story of all was probably the sustained performance of the Indian economy. Coming on the heels of an 8.4% year, if we can manage anything close to 7%, it would be a great achievement. Most importantly, industrial growth has been robust this year and I suspect that it will continue to be so in the years to come as new capacities come on stream, not necessarily to cater to the Indian market, but increasingly to serve export markets. Once better industrial growth is yoked with an already healthy services sector, then economic growth will be that much more sustained. There are serious grounds for optimism here.
I would also like to use this opportunity to close with a recap of my (pet) themes so far. One, over the long-term the Indian economy has moved on a higher growth path. Two, comparisons with China, while unflattering, are getting less so and the drivers of our growth are the private sector and not the government as in China’s case. Three, government actually needs to exit as many sectors as possible as quickly as possible because growth in India has been driven by private enterprise in sectors where government has finally got its act together. Four, one of the major but less reported reforms of the economy has been the declining cost of capital, and this probably was a cause of the previous government losing some of its popularity. But reforms such as this, where the government has to do what is right for the country even at the cost of their political standing, are necessary and needed. The biggest reform that is still needed is the one in politician’s minds—the desire to get re-elected at all costs. And five, the graft and corruption that exists in public life and is accepted and condoned by all concerned, is a huge drag on a better quality of life, and eventually the development of India.