The re-election of the United Progressive Alliance (UPA) has been met with euphoria in many quarters, including the market. This is neither surprising nor unjustified. But it is worrying.
The Congress-led alliance’s facile win in the elections was unexpected. Most people had readied themselves to witness the unedifying sight of parties making friends and influencing people in a scramble to make up the numbers. Instead, they saw the return to power of a stable force.
Illustration: Jayachandran / Mint
In the days since, the government has stoked the appetite for economic reform. There has been talk of reviewing foreign investment norms in several businesses, including insurance where investment by foreign firms is capped at 26%. There has been talk of disinvestment.
Simultaneously, the government has also promised to do what’s needed to revive growth. And the new finance minister—the former interim minister in a more permanent avatar—has promised that “whatever the economy needs will be done”.
The stock markets, a rough-and-ready barometer of business sentiment, have cheered the announcements. They are now around 80% up from where they were when elections were announced. And it is likely that they will rise more as more announcements are made in the days ahead. The new government seems to be in a generous mood, and investors and businessmen in a forgiving one. They are willing to blame the UPA’s failings over the past five years on the Communist parties—the alliance’s partner till the middle of last year.
The risk in all this is that the soaring expectations of industry lobbies, market players, investors and executives won’t be met when the new government sets out its economic agenda—mainly through the budget that it will present.
If the new government is over-promising, and if it under-delivers, everyone, and the stock markets, will be in for a shock when the budget is presented. The tone and tenor of its statements, and the reaction of the stock markets, would seem to indicate that the government has already over-promised. Now all that remains is the delivery.
The risks would have been far lower if the government had chosen to under-promise.
Still, that might be too much to expect from a party that surpassed its own expectations in the elections.
Is the new government over-promising? Does it run the risk of under-delivering? Tell us at email@example.com