When the Chairman and Managing Director of a bluechip, professionally-run manufacturing company expresses his opinion on the economy, one cannot but pause to reflect on it, especially when it runs counter to that held by policy makers. Mr A. M. Naik of Larsen & Toubro, speaking to this newspaper a few days ago, painted a picture of the economy, not in roseate colours but in shades of grey. The global markets were faring poorly; Japan needed a bail-out package, post-Fukushima, of $200 billion to start slow reconstruction, the European Union was having deep trouble in its peripheral areas with massive funds required simply to make sure that one crisis-ridden member does not trigger the collapse of a bloc, and the US was running up a staggering deficit of $14 trillion. At home, economic resilience differentiated India from the troubled western economies but investor confidence, according to him, remained low. The decision-making process had slowed down, he mulled.

Nothing Mr Naik said is unknown to anyone glancing at business channels or financial dailies. But it makes a difference when the leading executive, whose firm's investments mark a clear milestone in business sentiment, speaks thus. It confirms what the Reserve Bank of India had said in various credit policy statements since late last year about sluggish growth in investments. The mood is downbeat as was evident in the pessimism of auto firms about demand in the coming months; high interest rates will hit consumption, one of the other catalysts of growth. Now, as if to confirm the apprehension of firms, banks have petitioned the RBI for a pause in its key rate hikes. This is a significant development for it means that banks now fear credit demand has become increasingly “interest-sensitive”. What the RBI will now face is a triple dilemma, since it will have to balance not just growth with inflation control, but also with the health of banks, most of which rely on interest incomes for sound balance-sheets.

But Mr Naik's sentiment arises from the slowdown in “decision-making”. The RBI could hardly be accused of that, regular as it had been in combating inflation, often in vain. Paralysed by their infatuation with the target of 8 per cent growth, policy makers in New Delhi have failed to tackle the impediments to that goal. Investments in the core sector, for instance, would require cheap funds but, in the first instance, they need clear guidelines for speedy approvals at the Centre and the States and for the acquisition of land, not to mention a willingness to stem the slide into mis-governance. Lowering growth expectations in the light of growing evidence and, most importantly, the sentiment of stakeholders does not spell any kind of failure; wallowing in decisive inaction does.

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