Was there a policy paralysis in India?

Mon, 28 Jan Pre-Open

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The market run up over the past few months has broadly occurred due to the improving market sentiments following the slew of reforms announced by the government in recent times. This is what one section of the investing community believes. With some key economic concerns being addressed in recent times, the overall belief that the 'worst may be over' only seems to have strengthened. At the same time, many are of the view that the market run up has been on account of the global liquidity situation - where in money is being channelised into relatively riskier regions such as emerging markets and ergo, India. The term 'January effect' has been making rounds as well.Not to mention that the broader market valuations were on the lower side, in mid-2012, reflecting the investors' concerns. Amongst the many concerns, a key one was the prolonged phase of policy paralysis - the period before the government began announcing the 'reforms'.

However, it seems that Mr Kamal Nath, India's Urban Development Minister, does not buy viewpoint relating to the same. Speaking at the annual World Economic Forum (WEF) meeting, Mr Nath stated that India has seen the most number of reforms - even more than those seen in Europe and the US - any country would have witnessed in recent years. He believes that the slowdown in the European region trickled down to India. But, instead people saw this as a period of paralysis. Further, responding to a question relating to why India does not see much foreign interest in its infrastructure sector amongst others, Mr Nath believes that foreign investors expect too much from India. Mr Nath has based his response on the fact that after having a period of stupendous growth, investors get disappointed with minor dips in profit growth levels.

We do not entirely buy Mr Nath's argument. Yes, while the government may have suggested many reforms, a handful of the major ones have not been implemented or have been deferred (on a regular basis). While coming up with good policies is one aspect, implementation and execution of the same is key. Not to mention the fact that the investor concerns also move up in times of difficulty given the poor credit ratings (and hence the riskiness attached to it) of India. With growth levels of the country dipping by a third coupled with the concerns related to fiscal issues and the upcoming elections, foreign investors would be concerned about others aspects to protect their interests as well.