Photo: Hindustan Times
Photo: Hindustan Times

Confidence game

Policymakers are overly optimistic about India's economic prospects; its markets are singing a different tune

The recent turbulence in India’s equity markets is a story of what can be called a “confidence gap". India’s policymakers are overly optimistic about the country’s economic prospects; its markets are singing a different tune.

Because these markets are so dependent on foreign funds, the barest hint of a withdrawal or contraction in liquidity by the US Fed is enough to cause panic. And this is justified. India’s attractiveness until some years ago was due to its heady growth prospects. This is no longer the case. As India’s growth weakens, investors cannot be faulted for shying away.

This is unlikely to change soon. India is in a monetary tightening mode. That surely has an impact on investment and, in turn, growth. Until it sorts out its problems, the markets will remain turbulent. Its policymakers, in the meantime, should quit saying “the fundamentals are strong".