July 06, 2020
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"India Has Gone Off The Investor's Radar-Screen"

Short-term solutions for the stockmarket crisis will only ease the exit route, K.R. Bharat, managing director, Credit Suisse First Boston (India) Securities, told Outlook. Excerpts:

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"India Has Gone Off The Investor's Radar-Screen"

Where do you think the stockmarkets and the rupee are headed?

It all depends on what comes from Delhi. I don't think it's a stockmarket or currency problem. The problem is with macro policies. Can the government tell us their vision of the economy vis-a-vis global realities? Firefighting the problem now is like prescribing Aspirin for a migraine that has now worsened to a bloodclot in the brain. I believe short-term solutions for the stock-market will only help ease the exit route.

So, what is the problem?

The government needs to announce its policies on a horde of issues. If swadeshi is its battlecry, let it define swadeshi economics for India. Is protecting 350,000-odd businessmen of the country at the cost of 800 million of the country swadeshi? To increase our per capita income, GDP needs to grow at 7-7.5 per cent compounded till year 2015. To achieve this, trade flows are the best options. Unfortunately, the government is more bothered about ownership.

What do ownership concerns mean?

To give you an example: the biggest export earner in the UK is automotives industry. And not because of Rolls Royce or Jaguar. The earnings come from Toyota Motors and other foreign companies which have set up plants in the UK. Is trade flow the issue here or ownership? If the UK government had focused on Indian-style swadeshi, Toyota would have gone to Italy or France or Germany. The loser would have been England, not Toyota. It's because of Japanese and other foreign ownership that trade flows from Britain have increased. The government should allow anybody who would create wealth in the country. We should have no qualitative policy. The world does not work on selective concerns. It's like inviting someone for dinner and then telling them you can't have the main course.

Is the crisis unsalvageable?

Of course not. But some major policy decisions are needed. We need to open up markets completely. Why is the government dithering on insurance? The Electricity Act was an excellent bill. Why has it been pushed back? The government is even debating scrapping the ULCRA. Nobody has a problem with the way privatisation was tackled in the budget. The problem was that it envisaged kickstarting the economy through government spending rather than aggressively proceeding with reforms. India has gone off the radar-screens of many portfolio managers and investors, because the signal they got from India was Take it or Leave it. The only way we can reverse the situation is by opening up completely and by economic diplomacy. China plays its foreign policy card pretty well. Every year, when it's time to renew its MFN status, it starts awarding $10 billion contracts to the US for aircraft and infrastructural projects.

Is the downgrading justified?

Yes, we are graded below Thailand and in pure economic terms, you can't blame the rating agencies. India's share in the global trade is less than 0.5 per cent. It's like if you lend Rs 500 to someone and if you fear the person is going bankrupt, you'd avoid the person like plague, lest he asks you for more. But if you'd lent Rs 50 crore, you'd ensure the person remains solvent. The stakes are much higher.

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