Black, red, saffron

The economic mood is black. Pink paper headlines are gloomy. Saffron may not play ball on reform via legislation. But the reds are out of policy reckoning and in this Parliament there’s a large majority on the issue of reforms’ desirability. That “sense” of the House is a valuable political asset, given that it’s crucial the government does something. Crucial because economic policy is not just about macro details. Animal spirits are most important for a country at a crucial stage of capitalism-driven regeneration. How economic stakeholders and agents feel about the present determines in part where the economy is in the near future. Bruised confidence means fewer large economic bets. That’s no good. And no responsible government can be indifferent to it.

So change the headlines. How? PSU disinvestment has already been suggested and strong official indications have been given out that this is a real possibility. Don’t sit on it, as Indian bureaucracy can. The smart way to look at PSU stake sale is that these IPOs may act as the mood enhancer that will also recharge postponed private sector IPOs. Tesco has just announced a big solo investment in wholesale. Wal-Mart took the same route. Yes, foreign-owned superstores in retail are supposed to be a political hot potato. But the government can start pointing out that Indian-owned hypermarkets aren’t causing huge distress and the nationality of shopkeepers is irrelevant. Even talk about retail reform will lift spirits. Forward trading is banned or suspended in many commodities. Data shows the logic behind it — no forward trading means less price rise — is absurd. Lift the ban, and so lift mood.

There are other executive decisions possible. But the most important mood lifter will be political support for India’s growth story. RBI took a different tack and nothing can be done about it now. But the government must now admit the costs of pricing money high are painfully evident. India is paying for inflation panic that refused to see that commodity prices weren’t responsive to monetary blunt instruments. Now commodity prices are easing off. So let no further damage be done. And while we wait for reform of RBI, let other economic regulators be engaged in discussions on reducing restrictions. The ayatollahs of low expectations have had a party for months now. The economy caught the hangover. This government has enough time, opportunity and reason to start applying the cure.