Altering expectations

Uppermost in my mind, said new Union Finance Minister P. Chidambaram in his first statement to the media after returning to his former office in the west wing of the North Block, "is the duty to regain the confidence of all stakeholders" and, he assured us, policies would be "modified or fine-tuned in order to meet the expectations of different stakeholders."

In a statement marked by the kind of clarity of thinking one always associates with Chidambaram, the FM has set out his priorities for the remainder of the financial year. Hopefully, his walk will reinforce the talk and this will not just help "regain confidence" and "meet the expectations" of different stakeholders, but will in fact have the effect of "altering" their expectations.

The policy challenge before the Manmohan Singh government is not just one of regaining the confidence of various stakeholders or of meeting their expectations. Rather, it is one of reversing the current state of very negative expectations and restoring trust in the latent potential of the so-called "India Growth Story". Ups and downs are par for the course and very much a feature of the Indian growth process.

Unlike China's "growth story", which has been built on the strategy of creating excess supply, the Indian growth story has been built on the strategy of responding to incentives generated by excess demand. Which is why a certain degree of inflation is built into the Indian growth process. When that demand is not forthcoming from economic agents, the government has to step in periodically to generate demand. The government's inability to do so in the past two years has been part of the problem and it is this constraint that Prime Minister Manmohan Singh sought to ease by seeking to stimulate the "animal spirits" of private enterprise. It is this challenge that Chidambaram has identified as his first priority in office.

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