Manmohanomics 3.0

But, as any good student of Keynes would tell you, economic policymaking is ultimately about shaping the mood — of investors, consumers, savers, bankers, entrepreneurs and such economic agents. The "spontaneous urge to action", as Keynes defined "animal spirits", of millions of investors and entrepreneurs in India was dampened these last three years by the various acts of omission and commission of UPA 2. If UPA 1 promised less and delivered more, contributing to positive expectations, UPA 2 promised more and delivered less, contributing to negative expectations. The most recent example of such poor expectations management was what happened in the last week of former finance minister Pranab Mukherjee's term in office. News reports suggested that Mukherjee hoped to end his term with a bang and there would be some big policy announcements on his last working day. The day came and ended in a whimper. Cynics won the day.

The reason why expectations have suddenly turned positive this past week, boosting market sentiment, is that Singh and his team have been saying all the right things. But if there is no quick delivery, sentiment can easily turn negative and unrelentingly critical. Managing expectations in the process will remain a key challenge.

Manmohanomics 1.0 (M1) was crafted in the cradle of a crisis and so focused on fiscal adjustment, trade liberalisation, decontrol and delicensing. Manmohanomics 2.0 (M2) was built on the foundation of a much stronger economy and based on the idea of inclusive growth. M2 was in part a response to the aberrations of M1. That is, it sought a balance between equity and efficiency, redistribution and growth.

Manmohanomics 3.0 (M3) will have to be a response to the aberrations of the last three years. It must restore credibility to economic policymaking and fiscal management, changing spending priorities so as to boost growth and stimulate saving and investment. The ministries of finance and industries and commerce require modern-minded, transparent and efficient leadership. While Singh will and should use the opportunity that presents itself now, he would have to get himself a full-time finance minister, given the day-to-day requirements of that job, and a more capable and energetic council of ministers. The finance ministry must once again have the best and the brightest.

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