Lessons from Stability

For over half a century India has been pushing towards a better economy. We have made changes in the ways in which we see many an economic phenomenon. We have accepted reform in every sector of the economy. Yet we still only manage to fumble forward towards economic development.


The answer lies in the political setup of our dormant super-power of an economy. As a proven rule, continuity in economic policy is the key to sustained growth and development. The frequent alterations that come with paradoxically changing governments are detrimental to the smooth execution of the productive machinery: whether agriculture, industry or the service sector. The manner in which governments topple and are replaced is most counter-productive to development.


The general elections of 2009 have exemplified what stability can do for business. The UPA government is back in power and this time requires no Leftist allies. Policies can be followed through with relative ease. All this has reflected in the sharp upswing in the Stock Market. The Sensex has been reflecting this buoyancy ever since the results of the Lok Sabha elections were declared on the 18th of May 2009 and the Bombay Stock Exchange had to close trading for a whole day as the Sensex gained 2110.79 points form the previous close of 12173.42.


And it’s not just the market. The re-election of the UPA government relatively free of the Left has ensured that more reforms will be pushed through this term and the perspective planning that was set in motion at the beginning of the last term is seen through.


Change will not be instantaneous and there will be a gestation period before the economy sees the dreams that the budget proposed coming true. Many analysts are predicting that growth indices will fall back before they begin to climb. For instance it has been projected that industrial growth will actually go through a sharp negative trend; 6 % this fiscal year from around 7% in 2008/09, and from rates of 9% or more in the previous years; before levelling out again.


The NDA government before the last one and the Left interference during the previous tenure of the UPA made it impossible to implement reforms whole heartedly. But the stabilising factor of a government with such a clear majority and the continuity of policy are set to attract foreign investments too. However, the government will take a while before the proposition of raising investment from 26% to a drastic 49% will be considered. Over the long run, this will be good news and the UPA government’s dream of holistic and inclusive growth will be realised.


Given the general atmosphere of anticlimax after the Union Budget for this fiscal year was announced, analysts have warned that nothing drastic should be expected. Infrastructure development is to be the main item on the agenda and there is a definite proposal to rein in the GDP deficit while stimulating the economy. Rural issues will be getting a chunk of the financial assistance.


This period becomes interesting to study for everyone: right from the economists and the laymen to students. To see how relative political stability affects an economy in the throes of a recession will provide invaluable insight into future eco-political trends. There will be the factions of society that are averse to this sort of a setup and they will find voice in the Opposition. There will be complaints; justified in the early part of the tenure; about unsatisfactory growth rates and contradictory statistics. But in the long run, this political steadiness will lend a hand to the floundering economy.


So all the hullabaloo over stability is only justified when you pause to consider that the agenda of the government will be first: to curtail the recession and next: to thrust the economy forward. It may take a while. But that is not an issue for concern. See, stability means we have a while…


Karishma Modi

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