In the seventh edition of Cafemutual Confluence, Gautam started his presentation on a positive note by saying that over next few years, markets are poised to move up. Consequently, he added that while many in the audience share his view on market direction, he would be analysing this trend through the prism of policy analysis.
Gautam started with the history of policy making in India and compared the first four decades with the last three decades. Next, he highlighted the consistency in policy making in the last three decades irrespective of the government in power. Finally, he talked about how economic growth is a political compulsion in today’s world.
For his analysis, Gautam considered policies since 1980 as the Sensex was launched in 1979.
Right at the outset, Gautam shared that we are in one of the best periods in terms of economic growth. To drive the point home, he took us on a journey through the ‘dark’ decades - the first four decades following our independence. During this period, we began to shut out from the world. The wealth creators were treated with contempt and part of that attitude is prevalent even today.
He shared examples of a few such bureaucratic policies.
1947 – Controller of Capital Act – The act essentially meant that government would price public offerings and not business owners or investment banks.
1948 – Minimum wages law – Though minimum wage is a necessity there are 1200 sub categories of minimum wages based on each state’s interpretation of the law and category of labour. This over complication is negative for budding entrepreneurs.
The string of nationalisation between 1953 and 1980. Many large PSU’s of today (LIC, Air India, GIC, Maruti) were born during the period.
However, he mentioned that the above policies had less impact on India’s growth compared to the Industrial Policy resolution of 1956. The act mandated that state would be chiefly responsible for setting up new businesses not economic agents or business personnel. This was especially true in the core sectors. According to Gautam, this act was the philosophical and overreaching edict responsible for India’s low growth rates.
Gautam further elaborated that the impact of these policies was felt in the fifth decade. However, it was the sixth and the seventh decade after independence when economic reforms sharpened and deepened in India.
India’s balance of payment crisis forced India’s economic liberalisation. The 1991 budget was momentous. It opened the economy, formed the foreign investment board and started disinvestment process.
In the coming years, different regulatory bodies were formed - SEBI in 1992, IRDAI in 1999, PFRDA and Competition Commission in 2003, RERA in 2016 to monitor the financial markets. There were a slew of reform measures too, the most recent amongst them being GST in 2018.
Along with India’s economy, 1991 changed India’s politics too, says Gautam. Mapping India’s political story with the economic story, Gautam shared that the period saw the rise of coalition government. The Congress party ruled India during the first four decades the next decades saw the rise of regional parties. Gautam observes that it is in these coalition led governments that India has seen its biggest reforms. He highlighted that between 1998 and 2016, India had six Prime Ministers, while the nature and fabric of their coalition was different but all of them left their reform signature on India’s policy.
Gautam goes on to say that policy making in India has its own method/logic and reaches its own conclusion. He added that the democratic process in India has been able to capture the aspirations of the people and push the relevant policies irrespective of who wins the election.
Subsequently, Gautam highlighted the consistency in policy making in the last three decades by giving a few examples of key policy reforms. The Congress party envisioned Aadhaar though the Modi government enacted it. GST has an even longer history, this law is a successor to VAT which was proposed in the Rajiv Gandhi era. The NHAI (National Highway Association of India) was the brainchild of Atal Bihari Vajpayee but both Congress and later BJP carried the legacy forward. Gautam summed it up by saying that irrespective of who comes in power, the government will continue the reform process.
He concluded the presentation by saying that today economic growth is a political compulsion. Any government which delivers GDP growth below 6% will face political losses while the one which delivers GDP growth above 8% will get a political advantage. Other issues such as caste, religion are secondary, they feature in the ambit of 6-8%. Essentially, they will come into play if all other economic factors between opposing parties are the same. He adds that economic growth is the most important and invisible idea behind politics followed by coalition management owing to the growing prominence of regional parties.
He summed up the presentation by reiterating few points from his presentation. First, economic growth is a political compulsion, India is likely to grow between 6% and 8% and continuity in political reforms will continue across parties unless somethings goes terribly awry. He closed the presentation by saying that he had strong belief in India’s economic and market growth and thus, has invested in India.
