A full reading of the Economic Survey for financial year 2019-20 makes it unambiguously clear that the policy advisory organ of the incumbent government is overwhelmingly dominated by the 'market economists'. These economists want the government to follow the global best practices to make India a vibrant market economy.

Hitherto the domain of Indian policymaking had been predominantly occupied by the left-leaning development economists, who focused more on the government's role in poverty alleviation and inclusion. The policy documents therefore mostly spoke about government achievements and future targets.

But now, not only jargons like wealth creation, private enterprise, free market, decontrol, pro-business, stock market, privatisation and creative destruction have recently entered the policy corridors of the Indian government; the formats of the policy documents have also changed their appearances dramatically. The colorful graphics, literary quotations, statistical models, global comparisons and elaborate bibliography make boring documents like Economic Survey a thematic dissertation made by a team of research scholars.

Political establishment out of sync with policy advisory organ

The problem, however, is that the political establishment is not fully in sync with the policy advisory organ. The political leadership may be attracted to the idea of laissez faire but usually, the political compulsions are seen dominating the behaviour. This two-dimensional incongruence - (a) between policy advisory and political behaviour and (b) between leadership's aspirations and political compulsions - has created a humongous expectation gap in the markets. The documents like Economic Survey and vision documents published by the NITI Aayog raise the expectation levels of the financial markets to very high levels. Whereas the delivery in terms of actual policy statements usually fails to meet the market expectations leading to disappointment amongst market participants.

These frequent episodes of inflation and deflation of expectations have led to the weakening of faith in the policy framework. The market volatility around important announcements like Union Budget and Monetary Policy Statements must be seen in this context.

It is crucial for investors, therefore, to stop anticipating the policy changes, especially on the basis of the statements made by the policy advisory organs of the government; statement of intent made by the political leadership; and thoughts expressed by the experts considered close to the corridors of power. The investment strategy must be based on the crystallised policy framework, fully and unconditionally accepting that the wishes of the market participants are not a significant factor in the actual policymaking.

Call to make course correction

The investors also need to notice that in recent past almost every "former policy advisor" has written forcefully about what the government is doing wrong, and how the current economic slowdown could be reversed without much pain. People like Arvind Subramanian (former CEA), Arvind Pangharia (former vice-chairman of NITI Aayog), Raghuram Rajan (former RBI governor) and Subhash Chandra Garg (former finance secretary) have written and spoken extensively about the measures government should take to make course correction and also the things government is doing wrong, almost immediately after relinquishing their respective offices.

A reasonable assumption is that these people did not attain enlightenment overnight and had these thoughts while still being in office. A corollary would be that either the environment in the office did not permit them to express their honest opinions or the political establishment did not care to follow their advice. In either case, there is no basis for an investor to believe what the Economic Survey and NITI documents present. After reading 941 pages of Economic Survey, I have realised this. You can trust me or try it yourself. I leave that to you.

Vijay Kumar Gaba explores the treasure you know as India, and shares his experiences and observations about social, economic and cultural events and conditions. He contributes his pennies to the society as Director, Equal India Foundation. The views are personal.

Read his columns here.

First Published:Feb 3, 2020 4:53 PM IST