Finance Ministers like to put their stamp on Union Budgets, and delight in tinkering with policies. Such tinkering is hated by all, including (and especially) foreign investors, who prefer a stable policy regime to be able to plan their investments longer. O of value.

The Budget presented on July 5 by the new Finance Minister Nirmala Sitharaman, contained its share of tinkering, one in imposing a surcharge on some foreign investment income, and another by threatening jail terms for not meeting CSR norms. Foreign institutional investors (FIIs), who have the choice of investing globally, would see their dollar returns shrink by imposition of a surcharge, and so were quick to sell. The BSE Sensex fell over 3,000 points from the pre-Budget close of 39,900, over the next month and a half, when the government, alarmed, reversed the surcharge, and the unnecessarily harsh punishment for not adhering, willy-nilly, to CSR norms.

The Finance Minister announced a slew of 34 measures, on August 22, to help stablise the market. The markets would have fallen further, had it not been for the large flow of household savings into mutual funds, largely through the systematic investment plan (SIP) route. More than ₹8,000 crore of savings are being invested through the SIP route.

Why should we tinker around each time, only to reverse when the consequence of our action is adverse? Budgets ought, in fact, to be boring and dreary, not the kind of TV spectacle they have become, with a good chunk of the population glued to the TV and experts giving their opinion on the ‘fine print’ of the Budget. This government should work towards making budgets boring.

What with Trump tweeting his thoughts frequently, there is enough uncertainty around the world, which hampers global economic growth. This uncertainty flows from a) changes in technologies; b) in trade deals; c) in environment; and d) availability of natural resources.

Technology is driving enormous changes across industries, and this uncertainty results in brakes being applied on investments. That, in turn, slows GDP growth which is driven by both investment demand and consumer demand. This is witnessed in the auto sector, where demand has fallen sharply in India as customers await the introduction of more cost-effective electric vehicles. Yet we have not planned for the infrastructure that would make electric vehicles attractive, e.g, frequent and well-spaced charging infrastructure, with batteries that can be charged faster to reduce waiting time at the gas station.

Without enough charging stations, at frequent, short, intervals, demand will be slow to take off. Without demand taking off, auto manufacturers will be slow to commit investment. Without investment, the economy will be slow to grow. Job losses at auto companies and their overhanging debt burden are two additional worries.

The Fourth Industrial Revolution will cause more disruption, in almost all businesses, and, together with the growth of artificial intelligence and robotics, will result in the vanishing of a lot of jobs. Elon Musk dreams about solar powered homes (powered by very attractive solar roof tiles developed by him), which will generate electricity to power the home and to store both inside the house (for use at night) and outside, to power an electric vehicle. Thus, over time, the energy used to move the automobile would increasingly come from renewable energy than from depleting fossil fuel.

An alternative route to faster charging was envisaged by an Israeli company called Better Place. Unfortunately, the company ultimately went into bankruptcy. But the concept it proposed was innovative. The concept was to sell the vehicle without a battery. The battery would be ‘rented’ under different plans, much like telecom rental plans based upon the customer needs. Since the battery did not ‘belong’ to the car owner, there was no emotional attachment to it. Hence, when a battery needed recharging, the car would be driven to a charging station, the car would be winched up, the battery removed, a fully charged battery would be inserted and the car would be driven off in less time than it would take to fill a petrol tank. A brilliant concept which could be adopted in India too. If the charging time is reduced due to this, the potential demand can get a boost.

Electric vehicles need raw materials that are scarce. Rare earths are largely produced in China, which is using its stranglehold as a weapon. Another source for rare earths is Greenland, which explains the bizarre offer tweeted by the US President Doland Trump, to buy over Greenland from Denmark, the refusal of which led to a cancellation of an appointment with its Prime Minister!

Another technology that would be disruptive is that of 3D printing, which has been talked about for a long time. 3D printing is an ‘additive’ manufacturing process; the material is added layer by layer, guided by technology and implemented by robots. The normal manufacturing process is ‘subtractive’, involving peeling away unwanted layers of material (resulting in waste) to reach the final product.

The ongoing spat between the US and China over trade is also harming the global economy. Trump has asked large US companies to relocate their supply chains in order to reduce dependence on China. Until this is ironed out, investment is held back, affecting growth.

So stock markets are adversely reacting to the uncertainties caused by trade wars, technology changes and scarcities of raw materials. These are the factors, not high interest rates, that are hampering investment. Lowering of interest rates is driving money into ‘safe assets’ such as gold, and not leading to higher investment or consumption. That may, perhaps, happen if Twitter shuts down the account of Trump!

The India story, itself, looks good, as a lot of long overdue cleaning up of the system is happening. But it, too, will be affected by the global scene. Of the two eyes of investors, perhaps one can be kept on the Sensex and another on the Donald’s Twitter account.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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