Investors must take Rajan’s promise, not Pitroda's threat

Investors usually turn jittery ahead of any scheduled event that could alter the course of economic policymaking. This month is no different with the general elections underway that could either bring back a single party rule, or anoint an agglomeration of disparate political ideologies, much like 2004.

Mounting concerns of a total U turn in economic policies if the INDIA alliance led by the Congress Party were to take power seemed justified as a shrill Opposition dusted off the two-century-old resources redistribution theory of Karl Marx – and spooked the markets.

But investors who are rich at least on paper due to the rally in stock prices need to distinguish between the noise and the signal.

Sam Pitroda, as the former Chairman of Indian Overseas Congress and long-term friend of the Gandhi family, suggested India could look at inheritance tax as in the US. That was the lightning rod for investors and businessmen across the country, who believe they have unshackled four decades of Socialist chains to usher in a market economy at last.

The realistic view, however, is that there would be an alphabetical soup of political parties with Congress, and several of them would not share this view and may be more business friendly than the Modi government for reasons beyond the belief in Capitalism.

Investors’ worry is whether companies would be able to function the way they are, or they would be crippled. The intellectual community often grants less wisdom to the political class than they deserve.The governments since the exit of Rajiv Gandhi in 1989 may have been unstable, but there has been continuity in the management of the economy which need not have been out of conviction, but due to compulsions. While government finances may have seen swings, the corporate world has had relatively stable times.Immediate worries and reactions in stock markets do not matter for long-term investors. In 2004, when Manmohan Singh replaced Atal Behari Vajpayee as the Prime Minister, investors wanted to flee but there was no way with stock exchanges shutting due to the enormity of sell orders. The rest is history.

When Narendra Modi became the Prime Minister in 2014, the popular belief was that he would discontinue the programmes of the previous government. The reality is that Aadhar identification, no-frills accounts, and the rural employment programme of MNREGA were made more effective than getting consigned to the dustbin.

For a realistic assessment of what is in store if the nation gets even a coalition government, it is essential to listen to those who advise the Congress party on economic policies.

“Whatever government comes in will take a lot of the good stuff that has been done and continue it,’’ Raghuram Rajan, an economist who is speculated to be the Finance Minister in the event of an Opposition victory, told Bloomberg News.

“There is a lot of continuity built into Indian policy.’’

Pitroda had to quit his position and Rajan is doing the talking. For the investor, the choice is clear.


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