The sway of politics over our economy

  • Dhirendra Kumar, Hindustan Times, New Delhi
  • |
  • Updated: Sep 30, 2013 01:04 IST

In recent memory, there hasn’t been another period when the fate of business and investments seemed so dependent on government and politics.

It’s an old saying that when stock markets rise so much that the news spills over to the white newspapers, bad times are coming. This has been true for every major stock market crash I’ve seen.

Now I wonder if the counter is also true? When the pinks start covering politics as much the whites, are bad times looming? No one could be blamed for thinking so.

There used to be a notion that it was possible to make one’s investment portfolio politics-proof. That may not be doable any more. There’s hardly any investor who doesn’t feel events in politics and government are all that matter for the fate of their savings and investments.

I’m not saying that government and politics should not matter, but the degree does. There are three scenarios: normal impact of policies on investments; where government and politics become central; and they are the only thing that matters. Right now, you could be forgiven for thinking that politics, government and macroeconomic events are all that matter.

Look at the headlines over the past few months. Deficits, interest rates, government permissions for projects, exchange rates, land acquisition, liquidity, the central bank’s leadership — it seems these are all that matter.

Even fund flows from abroad — the real driver of Indian equities — seem to depend more on what America’s central bank does than on any inherent merit or demerit of businesses. 

Is this impression objectively true? No idea. But the bottomline seems to be that things will stay this way till the next general elections.


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