Not good enough. That’s the verdict from industry and analysts, widely reported in the media after the Rs 30,000 crore stimulus package was announced in the first week of December.

India Today called this a bonsai package. So what is good enough? Assocham’s Sajjan Jindal says 70,000 crores is good enough. CII Chief and ICICI MD K. V. Kamath says a package worth 2% of GDP would have been a ‘real booster’, around Rs. 100,000 crores. It is not quite clear where these numbers come from, but apparently something between 70,000 to 100,000 crores would make everyone happy. Since 30,000 crores is done, does this mean an additional 40,000 crores to 70,000 crores would be good?

Not only is there little clarity on how much is enough, the picture gets murkier when it comes to the details of the stimulus package. The auto sector is happy with the tax cut, real estate is unhappy, the Rs. 20 lakh limit is too low, Rs.50 lakhs would have been better.

Actually, this is not a problem unique to India. Whatever the central bank and government do is deemed insufficient. The Fed is now moving its interest rate closer to zero, and as Anantha Nageshwaran wrote in this newspaper, the race to the bottom has begun, but is not the right solution. Last month, Lorenzo Bini Smaghi of the ECB said that this crisis is different from all other crises since it has hit at confidence, which is the root of a market economy. All signals and incentives are not working, the effectiveness of monetary and fiscal policies has been impaired.

He pointed out for instance that interest rate cuts do little for the real economy when the transmission channel of monetary policy is affected. In such a situation, ‘There is a risk that policy action, even when rapid and ample, does not succeed in reversing the trend. There is a risk that policy-makers run out of ammunition too early and remain without a means of escape.’ The biggest contribution the state can make to bring the economy back on track, Smagh says, is to work towards restoring confidence in the market.

But how does one go about restoring confidence unless the government and the central bank have credibility? Dr. Subbarao recently reiterated that, “The fundamentals of our economy continue to be strong. Once calm and confidence are restored in the global markets, economic activity in India will recover sharply. But a period of painful adjustment is inevitable. The Reserve Bank's policy endeavour will be to ensure an orderly adjustment, and to minimize the pain of its impact.

This puts a higher responsibility on the government than merely announcing tax cuts and stimulus packages. It means that going ahead there has to be much better communication and more coherence from the government. This also puts a higher responsibility on the shoulders of firms and the markets. Given the precariousness of the fiscal situation, it is understandable for the govt to proceed with caution. Markets, industry and analysts should remember that the government will only release help in instalments and such measures will not have instant benefits. In trying to meet the expectations of the industry and the markets, without any understanding of where we are all headed, the government will end up tying itself in knots, damaging the economy’s long term growth path. For instance when Kamal Nath says, ‘This will not be a single package. There will be a first package, second and third part of it,"  and gives no clue as to what these packages will entail, not only are people left looking for more, but there will be again intense lobbying to get their concessions through first.

It is also very likely that businesses will postpone decision-making until they feel that Kamal Nath has unloaded all the packages, making this a cat and mouse game. In fact this is a serious problem when measures are looking quite ad-hoc.