What a government does not do can reveal as much about its intentions as what it does
By Mohan Sule
Prime Minister Narendra Modi has received a bucketful of advice on what he must do to shake up the economy. In governance, what you do not do is equally important as what you do. Most federal bank governors in the world are reticent and confine to releasing quarterly reviews and outlook lest any of their remarks is wrongly interpreted by the money markets. There is no place for bravado while acting to tame inflation, boost growth, and restore investor confidence. From his first few days in office, it is evident that Modi is not going to practice some of the rhetorical flourishes of his campaign. He did not bow down to pressure from allies on the presence of Pakistan’s prime minister and Srilanka’s president at his inauguration. In the same way, he should not equate the strength of the rupee with India’s might in the global order. The import bill would surely come down if the Indian currency appreciates significantly but so will export earning. Just as inflation, its level hinges on the economic policies of the government. Tweaking of interest rates and intervention in the foreign exchange market by the Reserve Bank of India are merely firefighting exercises. The September 2008 global credit crisis has demonstrated that a currency is capable of moving due to factors beyond the control of the government and the central bank. Besides, what should be the level of the rupee is a debatable question.
One of the prime reasons for the defeat of Congress in the April-May general election was surging consumer prices. The new government is under pressure to tame inflation. In a report commissioned by the UPA I government early during its tenure, Modi had recommended crackdown on hoarders and clearing distributing bottlenecks. As such he is bound to implement his own suggestions. What he should not do is to pressurize the central bank to lower interest rates. Soft lending rates will no doubt boost consumption and trigger investment revival. The downside is these will not be sustainable. The release of pent-up demand and lag effect in ensuring availability could push up prices again. Instead the prime minister should let the RBI take a call, restricting himself to tackling supply-side issues and policy on minimum support prices for food grains. This hands-off approach should extend to scamsters, some of whom have political connections. The promoters of Sahara and NSEL are currently behind bars, accused of duping investors of crores of rupees. The then ruling dispensation at the Centre tried to ensnare the chief minister of Gujarat in many cases. In the end, Modi emerged triumphant by allowing the law to take its course. He should allow the wheels of justice to determine the fate of Subrata Roy and Jignesh Shah. Similarly, the prime minister should not be seen favouring any industrial group. The test case will be pricing of RIL’s gas. The previous government had okayed a hike to be implemented from April but deferred due to the Lok Sabha polls. A rollback will be a popular move but offer temporary respite as pricing of any commodity is not static and has to incorporate demand and supply. Not acting would be capitalized by opposition and could contribute to inflation. Modi should neither try to appease the consumers, which include Reliance Power, or the producer but take a long-term view that would ensure steady supply at reasonable price.
It would not be wrong to say that the UPA II government was ruled by committees. Within the cabinet, there were empowered groups of ministers, now abolished, to decide on sensitive policies. Another fad was appointing commissions to come out with reports on controversial subjects. The government does need expert advice from time to time. With the wisdom of hindsight, it is now clear that the findings can be tailored by packing the panel with members tilted towards a particular view. On many occasions the recommendations of the committees have been junked for being too radical or not suited to the prevalent political climate. Modi has positioned himself as decisive. Hence, he should not fall prey to the temptation of passing the buck. The electorate should know that, in whatever way it was arrived, the decision has his stamp of approval. Last, never should the prime minister say that he does not lose sleep over stock market volatility, like Manmohan Singh famously did during his stint as finance minister. The capital market is a measure of the health of the country. Transparent, forward-looking, and stable policies are essential for issuers and consumers of capital, who are necessary to create jobs, one of the objectives of the prime minister. A robust primary and secondary market is the best gauge for Modi to measure the success of his development agenda.
By Mohan Sule
Prime Minister Narendra Modi has received a bucketful of advice on what he must do to shake up the economy. In governance, what you do not do is equally important as what you do. Most federal bank governors in the world are reticent and confine to releasing quarterly reviews and outlook lest any of their remarks is wrongly interpreted by the money markets. There is no place for bravado while acting to tame inflation, boost growth, and restore investor confidence. From his first few days in office, it is evident that Modi is not going to practice some of the rhetorical flourishes of his campaign. He did not bow down to pressure from allies on the presence of Pakistan’s prime minister and Srilanka’s president at his inauguration. In the same way, he should not equate the strength of the rupee with India’s might in the global order. The import bill would surely come down if the Indian currency appreciates significantly but so will export earning. Just as inflation, its level hinges on the economic policies of the government. Tweaking of interest rates and intervention in the foreign exchange market by the Reserve Bank of India are merely firefighting exercises. The September 2008 global credit crisis has demonstrated that a currency is capable of moving due to factors beyond the control of the government and the central bank. Besides, what should be the level of the rupee is a debatable question.
One of the prime reasons for the defeat of Congress in the April-May general election was surging consumer prices. The new government is under pressure to tame inflation. In a report commissioned by the UPA I government early during its tenure, Modi had recommended crackdown on hoarders and clearing distributing bottlenecks. As such he is bound to implement his own suggestions. What he should not do is to pressurize the central bank to lower interest rates. Soft lending rates will no doubt boost consumption and trigger investment revival. The downside is these will not be sustainable. The release of pent-up demand and lag effect in ensuring availability could push up prices again. Instead the prime minister should let the RBI take a call, restricting himself to tackling supply-side issues and policy on minimum support prices for food grains. This hands-off approach should extend to scamsters, some of whom have political connections. The promoters of Sahara and NSEL are currently behind bars, accused of duping investors of crores of rupees. The then ruling dispensation at the Centre tried to ensnare the chief minister of Gujarat in many cases. In the end, Modi emerged triumphant by allowing the law to take its course. He should allow the wheels of justice to determine the fate of Subrata Roy and Jignesh Shah. Similarly, the prime minister should not be seen favouring any industrial group. The test case will be pricing of RIL’s gas. The previous government had okayed a hike to be implemented from April but deferred due to the Lok Sabha polls. A rollback will be a popular move but offer temporary respite as pricing of any commodity is not static and has to incorporate demand and supply. Not acting would be capitalized by opposition and could contribute to inflation. Modi should neither try to appease the consumers, which include Reliance Power, or the producer but take a long-term view that would ensure steady supply at reasonable price.
It would not be wrong to say that the UPA II government was ruled by committees. Within the cabinet, there were empowered groups of ministers, now abolished, to decide on sensitive policies. Another fad was appointing commissions to come out with reports on controversial subjects. The government does need expert advice from time to time. With the wisdom of hindsight, it is now clear that the findings can be tailored by packing the panel with members tilted towards a particular view. On many occasions the recommendations of the committees have been junked for being too radical or not suited to the prevalent political climate. Modi has positioned himself as decisive. Hence, he should not fall prey to the temptation of passing the buck. The electorate should know that, in whatever way it was arrived, the decision has his stamp of approval. Last, never should the prime minister say that he does not lose sleep over stock market volatility, like Manmohan Singh famously did during his stint as finance minister. The capital market is a measure of the health of the country. Transparent, forward-looking, and stable policies are essential for issuers and consumers of capital, who are necessary to create jobs, one of the objectives of the prime minister. A robust primary and secondary market is the best gauge for Modi to measure the success of his development agenda.
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