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Big Talks, Little Impact

The trust vote circus will not have any long-lasting effect on the stock markets, says Dhirendra Kumar

For many days now, it has been self-evident to most observers of the stock market that the trust vote tomorrow will be a crucial event. The stock markets' logic is that for four years, the government has not been able to move ahead with the reforms because of the left parties' millstone around its neck. Now, unencumbered by the comrades, the great reformers will charge forward and in the next six months they'll catch up on the 'liberalisation agenda'. The economy has paid a high price for these four years, much higher than the Congress is paying for MPs right now. It's time to break free.

That's the story, and when narrated by a stockbroker trying to convince you to buy a stock it can sound realistic enough to bring a tear to the eye. Four wasted years, the dark memories of which will be swept away in a few months! Don't fall for it. Very little has actually been done in the last four years. Six months is 12.5 per cent of four years. Therefore, at best, you should expect 12.5 per cent of very little.

If Manmohan Singh wins the vote of confidence then that will generate some temporary talking points that people will use to try and boost some stocks. That aside, no great liberalisation agenda is going to get fulfilled. Certainly none that justifies the kind of optimism I see among many investors. What exactly is this great agenda that will move things forward? There are a handful of items that everybody lists. Pensions reforms, foreign stake in insurance, things like that.

Unfortunately, the larger picture is so problematic now, that these appear to be quite minor issues. Talk to ten businessmen and ask them what they see as major problems and the list you will get will basically be about lack of educated manpower, infrastructure, inflation and interest rates. Think carefully about these and other basic problems and you'll see that what is holding us back is the utter failure of the government to do its job. It's amazing we are a country whose main characteristic is that it has a lot of people and we have basically run out of people who are capable of manning our service sector.

The story of our economic revival has basically ground to a halt. And that's because the low-hanging fruits have been picked, eaten and digested. The low-hanging fruit were basically those easy things where the government was actively preventing the people from doing anything. When the restrictions were lifted, a resurgence happened that has basically brought us to this point. Now comes the tough part, when the difficult things have to be attempted. Like upgrading our education system, which would have been perfect had our population been about 10 crore. Or our infrastructure, which is perfectly suited to a country which has a total of 10 crore people who live a pastoral life and neither trade nor travel.

What this means is that whatever happens in that big round circus building in New Delhi tomorrow is utterly irrelevant. Things will move forward, some business will do better, others badly. Some investments will make money, others will lose it. But don't expect the trust vote to have any long-lasting impact.