When a problem seems very large and beyond our control, there is only one way to deal with it – break it into smaller parts. 

The pessimism has set in quite deep in India and of course abroad.  The government wants to show an optimistic face, but no one really believes it anymore.  So then how do we get out of this rut that we are thinking our way into?  The answer, strangely, remains the same as before – confidence, action, and reforms. 

It is thought by some that investment drives growth.  That reality is somewhat different.  It is the expectation of growth that drives investments. If you don’t believe me, ask any investor, or a CEO, or a bank manager.  So, it is sustaining the growth expectation that needs to be the policy objective; not getting a few billion dollars from the World Bank.

 

 

 

So what should the government specifically? 

First accept that we have a crisis at hand.  Level with everyone - There is a problem, and we are going to take corrective action, we will maintain overall growth and equity objectives.

 

Second, break the larger problem into smaller ones, in most cases solutions are known.  And in many of these cases there is little opposition to them.  Implement them or if that’s not possible, commit to them in a time bound manner.  The success of VAT implementation has already shown us the way on how these are done.

 

Third, in many of these cases there can be a consensus – build a least common denominator agenda. Ask other political parties for their affirmation.  If they don’t agree (which is probable) so be it, but at-least we would have tried.

 

Fourth, don’t wait for good news.  There is no good news coming from anywhere, except what we generate by our own actions.

 

Fifth, take action even if that does not lead to instantaneous results.  Let the politicians and the bureaucrats visit the offices of businesses and associations rather than the other way round. The only credible action is one where the actor is seen to put in effort.

 

Sixth, get internal trade working.

 

Seventh, level with the banks and solve their uncertainty problem now that the liquidity problem has been taken care of.

 

Eighth, don’t show optimism without credible action, for that only looks like a farce and further feeds pessimism.  And absolutely do not ask people to stop lay-offs or reduce prices. 

 

Yes no one can be in complete control of the situation.  Neither can the Indian government.  But even if outcomes are uncertain, our confidence in our abilities is not. And for that the government needs to be seen taking credible, and domestic economy oriented, action.

Last 5 posts by Laveesh Bhandari

• Irrelevance of the State and Naxalites - September 25th, 2009
• Handling Naxalites - August 8th, 2009
• Trust and economic foundations of peaceful progress - August 8th, 2009
• What education? - August 7th, 2009
• Need for introspection - August 7th, 2009

Tags: economic pessimism, economy

This entry was posted on Friday, November 28th, 2008 at 1:42 pm and is filed under Indian Economy, Policy, Regulation and Competition. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.