Talk about over-promising and under-delivering. Pranab Mukherjee inflated the market's hopes that he'd take bold measures to boost investor confidence, but came up with a few small tweaks – on his last day as India's finance minister. Hopefully his successor will talk less and act more.
At the end of last week the rupee hit another record low against the U.S. dollar. Over the weekend, the prime minister, Manmohan Singh, returned to India from the G20 summit and outgoing finance minister, Mr. Mukherjee, began his election campaign for the ceremonial role of president. Both men briefed the press about the bold steps that they were preparing, which would raise India out of its present slump. Investors salivated at the prospect of substantial change, but on Monday afternoon they received only thin gruel – the highlight of which was a $5-billion (U.S.) increase in the limit of foreign ownership of Indian government bonds. The rupee and the SENSEX fell slightly on the announcement.
It's a measure of the appetite for economic reform in India that people allowed themselves to get carried away. In fact, political U-turns are now more likely than follow-through. Remember flip-flops over foreign direct investment in retail and the ban on cotton exports? There's the long list of pending but yet-to-materialize initiatives: reduction of fuel subsides, a more efficient tax system, increasing foreign direct investment in insurance and aviation, and land and mining reforms. The best hope now is that eventually the government may do the right thing, after all other options have failed. While waiting, loose talk creates unnecessary market volatility. It's too late for Mr. Mukherjee to learn the lesson. He's retiring on Tuesday. Manmohan Singh will take on the role – with a lot of unfinished business – until a full-time successor can be found. Mr. Singh, the notoriously tight-lipped architect of India's first economic revival, is likely to realize that actions will count more than words.