There’s a turf war going on out there between the various arms of the government. And unless all concerned sit down and hold a mature discussion on all the issues, matters could get out of hand.
So, we have the Supreme Court stepping in to decide on matters of defence acquisition, which is the domain of the government, and also quizzing an air force officer about the suitability of a particular aircraft to meet India’s defence needs. This is surprising, because the specialist knowledge on any subject is acquired over a number of years, and, surely, the parameters of selection cannot be the subject of an open scrutiny which is available to our perceived enemies.
The internecine warfare in the top investigating agency, also being investigated by the Supreme Court, as well as the showdown between the government and the monetary regulator, RBI, are hugely avoidable and ought to be handled more discreetly and with maturity. The very public crossing of turf boundaries only detracts the good that has been done, illustrated in the strides India has made in the Ease of Doing Business rankings, for example, an effort praised by the President of the World Bank.
Impact on interest rates
Prices of crude oil which were going strong at over $85/barrel, and expected to cross $100, have, instead, fallen very swiftly to $63, giving a huge boost to India’s economic prospects. India imports 80 per cent of its needs. The sharp fall is the result of several factors. And, what should be more worrying for equity investors, the sharp drop in crude prices announces low expectation of economic growth, including in the US. Will low expectations of US economic growth lead to a slowing of interest rate hike cycles by the US Fed, is a question investors must look at. Investors are expecting an interest rate hike in December, almost a certainty, and three more in 2019. Should the three be reduced, the market would go up; should there be more than three hikes in 2019, the market would fall.
Plenty of other steps, besides agreeing to a less public way to sort out turf issues between different arms of the government, need to be taken. The government has stated a policy of zero tolerance to corruption for white collar crime, but this is observed more in intent than in practise. White collar criminals have stolen resources from the public through Ponzi schemes, and use these resources to obtain judicial delays and investigative water-downs. The PMO should directly step in and send a signal, if it is true to its word.
Last week, the PMO asked SEBI to investigate whether the September fall in stock markets was orchestrated, and managed by a cartel. Sorry, this is how markets work. SEBI’s resources would be better employed investigating, and taking action against, white collar criminals. If the PMO does not like the message stock markets send, it’s best to introspect rather than assume conspiracy.
Consequent to the RBI board meeting, it has agreed to pump in some ₹8,000 crore through purchase of government securities (G-Secs) on November 22, which could lead to a rally.
Results of the five States that go to the polls in November/December, will be announced in mid-December. If Congress wins in a majority of these states, the market may become nervous; if not, markets would rally.
(The writer is India Head — Finance Asia/Haymarket. The views are personal.)