The election has thrown up an outcome that the stock market was simply not prepared for. High on steroids of the ‘clear’ outcome, the Indian markets delivered a circuit-breaking 14.48% rise in the Nifty in the opening session after the poll results. The focus among the investing fraternity has now shifted to creating a policy wishlist for the new government. But why should the Centre be guided by what’s best for the stock market? After all, with less than 3% of registered voters connected with the stock market, we, the investors, represent a small (if financially significant) interest group.
The Congress-led coalition has been elected to govern the country, not to please the stock market. The country has some pressing problems that threaten its long-term prosperity, stability and existence. So the government should focus more on national concerns than on organising one-way parties for the punting class. I don’t have immediate solutions for tackling these problems, but I do know that stock market participants would do well to raise these core issues, rather than implore the government to turn more investorfriendly. So what are these issues?
Goals For The New Government
Heading my list is over-population. India is a demographic time bomb, and we simply must take every logical, and ethical, step to stabilise our population in the next 20 or 30 years, by which time we will be over 1.6 billion people anyway.
Connected to this is the issue of basic subsistence: minimum income, nutrition, education and health. Until we deliver these to every citizen, we cannot have a semblance of law and order. Many of our problems are attributable to the burgeoning population and the lack of basic survival for large chunks. Perhaps linking population control with conditional access to a state-guaranteed minimum standard of living is the way forward. And if this leads to some additional slippage on the fiscal, so be it. Why be concerned about stock market pundits, who in their cosy air-conditioned boardrooms, disapprove of such moves?
The second most important concern is that of creating ‘basic’ employment for a large number of people, so that subsistence income is available for the able and willing. What better way to do it than by extending the scope and size of the National Rural Employment Guarantee Scheme to cover the entire country, including urban pockets? The effort mobilised thus can surely be used to create vast quantities of basic infrastructure. In cities, this effort can transform the quality of life through the delivery of amenities at a low, subsidised cost to all citizens. Once again, why bother if this contributes to some fiscal profligacy? As if the US and other western governments are models of fiscal prudence anymore!
Policies and Reforms
A pathetically blemished implementation record has been the Achilles heel of almost all our grassroot development programmes. A government that is visionary and has a human face necessarily needs to be one that works. Otherwise, all the efforts are just shallow intent that evaporates in the face of administrative inefficiency and corruption. Our babudom has to be jolted into action, and this extends to all arms of public administration. If the new coalition is able to extract even 10% more productive effort, 10% lesser corruption and 10% faster judicial delivery from the 35 million government and PSU employees, we will see staggering development.
How To Achieve These Goals
Let me assure you that all this stuff is market-friendly. After all, what’s good for the country will find reasonable resonance in the markets in terms of increased business opportunities.
The government needs to facilitate business rather than try to over-govern it, while ensuring that no unfair advantage, or disadvantage, accrues to any player. This can happen in a variety of ways.
Firstly, the framework within which businesses operate must be enabling, not debilitating. Legal compliance, taxation and reporting for all businesses and economic activity should be simplified. Secondly, policy evolution must be driven by a healthy trade-off between the desirability of private profit, and ensuring equity and inclusive growth. For example, if land was desperately needed for the Nano factory in West Bengal, it would help to allot fallow government land rather than privately held fertile land.
Regressive laws and practices like the land ceiling act, rent control, dividend distribution tax, fuel price controls, power distribution and rigid labour laws are screaming for reform.
Core sectors such as power, oil & gas, mining, roads, railways, ports, airlines, public transport and urban infrastructure must be progressively opened up for private participation via appropriate enabling structures. This will incentivise efficiency, ensure that cost savings accrue to users and, yet, allow a fair return on capital invested when base case demand does not generate sufficient returns.
Not all public sector companies need to be divested blindly. The loss-makers should be valued in terms of their hidden and underutilised assets and disposed of, with the government retaining a residual share to participate in future upsides. Today, most PSU navratnas are stable and capable businesses with multi-year growth visibility. Many of them can embark on massive investment and growth plans if given a free hand. The relative success of the private sector in areas like telecom and IT should serve as a pointer for what is possible with private participation in employment-intensive services such as retail, healthcare, higher education and agri-trade, if only labour laws permit.
With a view to ensuring inclusive growth, the appropriate use of technology such as smartcards and biometrics can ensure better targeting of subsidies so as to plug the leakages in the system. Technology can also ensure better tax compliance and simplification of procedures.
Environment, natural habitat conservation, preservation of eco-systems and energy efficiency should also figure high in the list of priorities. But the ‘item zero’ to head the entire list is national security. Everything else pales into insignificance when compared with it. It was less than six months ago that 10 terrorists sailed through India’s western coast and held our largest city to ransom for three days. It is in this crucial aspect that the present coalition’s leader, the Congress party, does not really have an inspiring history.
With instability dogging almost every country in its neighbourhood, India should first worry about protecting its borders and people from covert and overt external attacks. It can do this via a strong and well-founded foreign policy and well-equipped armed forces. Clearly Manmohan Singh has his task cut out for him.
These are the author’s personal views and in no way reflect those of his company or Money Today.
Dipen Sheth is Vice-President, Institutional Equities, BRICS Securities Ltd.