October 20, 2008 10:47:10 am
Six weeks into the ongoing financial crisis, the markets and the people of India are crying out for decisive political leadership that brings back some of the old confidence, something that cuts this murderously vicious cycle of setbacks and pessimism, where bad news feeds on expectations of worse, and where all rumours are taken to be true, in fact, the worse the rumour, the truer it is taken to be.
It is not as if the policymakers, leaders of the economy, including the Finance Minister and the regulators, have done nothing. Significant steps have been taken over the past two weeks to unfreeze liquidity and to improve confidence in the banking system. But the responses so far have been defensive, reactive, behind the curve. This has to end now. And the onus is on the Prime Minister to do so. This is too big, and too complex a crisis to be left to professionals. Political leadership at the very top has to step out and assure the people that the economy and the financial system is safe, as it should be, given the health of our banks and overall fundamentals.
That doubts remain in spite of these positives, is a fact you can argue with, but not deny. That is why India and the world don’t merely need the Prime Minister’s words of reassurance, they need to see decisive action. Now. Preferably in Parliament today, before he leaves on his foreign visit, that will take the rest of this working week.
He has to make a categorical statement that India is resolute and focussed enough to ensure it will not allow any bank, debt mutual fund or Non-Banking Financial Company (NBFC) to collapse in these days of liquidity crisis. Just a bland “your deposits are safe” won’t work. He has to announce an intention to invest in the capital of all the major banks. Of course, these can be sold off in three years, most likely on a profit. Then he must categorically state that liquidity, a purely self-inflicted disaster in India, will be provided and signal significant rate cuts. The Prime Minister is wise enough to know that the time for the usual Indian incrementalism is gone. The great doctor of economics knows fully well that homoeopathy, delivering the drug in small doses, won’t do.
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His British counterpart Gordon Brown has shown how decisive, but big steps taken early enough, can help. He was the first to announce a massive capitalisation of his banks and now not only do G-7 and Europe look for his leadership, even the US took his template. His stock has even gone up at home. In fact, some go so far as to say that with one display of decisive, bold action, he may have turned the tables on the Conservatives. What helped is the fact that he is a former Chancellor of the Exchequer and people think he should know what he is doing. Of course, Dr Singh has been a former finance minister, central bank governor, finance secretary and Planning Commission head, besides being a world class economist. His Finance Minister, his Planning Commission chief, his regulators, including the RBI governor and SEBI chief, are a team so honourable and formidable that had they run an international consultancy today, they would have been flooded with calls for help.
But Dr Singh has to take a leaf out of Brown’s book now. It is tempting to call this Manmohan Singh’s Gordon Brown moment. If he comes out with big, bold action backed by his personal and professional credibility and stature, he will save India a crisis it never deserved in the first place. He may, in the process, change his coalition’s electoral fortunes as well. And finally, he may go down in India’s history as the leader who converted two great economic crises (the other being the near-bankruptcy of 1991) into opportunities that lifted tens of crores out of poverty. So no, let us not be so simplistic as to say this is Manmohan Singh’s Gordon Brown moment. Given his own stellar record of 1991, this is more like Manmohan Singh’s Manmohan moment. It is for him to seize it, and the time is NOW.
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