Losing the image war

When will UPA learn that perceptions matter? For starters,government could take lessons from TCS

Written by Subhomoy Bhattacharjee | Published: July 21, 2012 12:11:13 am

In this quarter’s results season,TCS showed it has the smarts. Since Infosys,which leads the season’s first big result,was showing a series of indifferent results that affected the perception of the markets,TCS decided to bring its results to the same date as Infy.

Perceptions matter. They matter in the case of companies and they matter even more in the case of entities like governments. They matter even when you have a good tale to tell; TCS’s first quarter net profit grew by 37.4 per cent. They matter more when the tale has gone bad,but can be used to bring about a happy turn.

The Indian government needs to learn this. Till 2010,it was inconceivable that it could do anything wrong. In 2012,it can do just nothing right.

For starters,the stern criticism from Singapore to the US is a follow-through of India’s own sterling performance. For seven years,as the Indian growth story became better and better,a large number of foreign companies and funds started poring over the government budget numbers,corporate score cards and even socio-economic indicators to glean details for investment opportunities.

Those who moved fast were rewarded. As an Italian business delegation chief exploring opportunities with the ministry of small and micro enterprises told this correspondent in New Delhi a couple of years ago,they were extremely worried about having come to India “late”.

And then,the Indian growth story began to unspool in the presence of these investors. Through the horror of 2011,as the government’s policymaking machinery went into an economic kamikaze dive,the investors saw in minute detail each of those moves.

This is the detailed perception that the born-again finance minister,Manmohan Singh,is battling. And this is an image that will take considerable time to exorcise.

A secretary at the finance ministry explained a vignette from this period. To elucidate the context,he said the Indian government’s running battle with rising oil subsidy is a well-known phenomenon for all rating agencies. Every year,they duly note the government of India’s resolve to get to the base of the problem,and then the meeting disperses. The sweetener for them to swallow the argument is the incredible growth rate India dishes out every year.

The tone of those meetings changed as the growth story came unstuck. On the subject of oil subsidy,the agencies refused to buy any of the arguments from the government,insisting instead on a definite timeframe to phase it out. He was not surprised when Standard & Poor’s,and later Fitch,downgraded the foreign currency outlook for India.

The India story is now playing out under the microscope of every analyst. This means the options for the Union government to make mistakes and correct for them later are rather limited. Just sample the shenanigans surrounding the ONGC follow-through offer,which had to be rescued almost by the bell by LIC. The messages racing among the fund managers that morning makes Obama’s comment seem like boy-scout stuff.

This also means decisions on major issues have to be thought through the entire chain of economic decision-making before they are implemented. India is too significant a country in the comity of nations now to be able to make gaffes like introducing and withdrawing steps — like the decision on foreign direct investment in multi-brand retail — and then expect to get away with it. The perception of a flailing government will become etched even more strongly.

One could,of course,argue if there is such a necessity to “play to the gallery”. This is a wrong assumption. Decisions on economic issues within the Union government are even now taken in highly insulated quarters. Those will not break down overnight,but on any given day the business press is awash with stories of ministries nicely ripping apart proposals from others. If you don’t believe it,just check out the dispute over how Ikea should implement its domestic sourcing norms. For those who think I am still exaggerating this silo mentality,please ask Coal Videsh,a creature of five ministries,whose managers have abandoned hope that the company will ever get a mining lease abroad. For any bid to be even made,its proposal runs through the corridors of at least eight ministries.

It is unlikely that these habits will be sorted out soon. There have been myriad initiatives taken by each incoming administration to cut the red tape. So we have to live with them. What is needed at this juncture for perceptions to alter? This would need decisions,whenever they are taken,to hold their course. If the cabinet feels that a pension or insurance bill will not pass muster,it is better not to open it up for inspection. Nobody within the finance ministry was really convinced there were pots of black money sitting idle in vaults. But the dervish dance on the issue has done us no good.

The benevolent combination of a soft global economic climate and cash-rich corporations at home to spur an investment boom are unlikely to return this decade. The warts of decision-making could be glossed over under those conditions. Not anymore.

India can yet ratchet up its growth rate to close to 8 per cent by 2014-15,provided two things happen. The first is that capital flows in from abroad and the second is that each government,in the states and at the Centre,decides to do its homework on economic decision-making. Both form what is known as the necessary and sufficient condition for growth.

The gap between the current savings rate at 31.6 per cent and the investment rate is close to 35.2 per cent (2011-12). This can only be filled through capital flows from abroad. Despite the gradual collapse of the eurozone,there is no ground for assuming that capital flows to India will mount on the rebound. There are enough interesting regions opening up in Asia,including even Myanmar,that will be contenders for these flows.

To make the second condition work,then,is tantamount to getting the perceptions right about India. That is what this government has lost at its own initiative,and it is what it needs to regain for serious money to flow in.


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