Political stability and economic performance

People are pushing hard, saying that restrictions on foreign direct investments should be removed. I don't know whether this will come through within the next two to three years. But we are definitely traversing ground that will ultimately take us towards global integration, in which event India will have to take on the world with a competitive spirit.

The question before us is whether we have correctly positioned ourselves to meet this competition. It is not a question of the growth but one of the structure of industry -- and I don't think the answer is yes. I'm afraid we still have to cover a lot of ground in order to make Indian industry competitive.

domain-B: What would you attribute the current situation to - the inherent attitude of Indian industry - of poor enterprise or political instability, or any other factor?

N. Vaghul: Political instability is one factor, but not the only one. I have always felt that there is an inverse correlation between political stability and economic performance. Generally you find that in periods of political instability, economic performance tends to be good.

Look at what's happening in the market today. For the past eight days (5 May 1999 onwards), the market has been moving up and up. The Sensex has shot up, and will soon touch 4000. If you look at the political atmosphere today, there is political instability, in the sense that there is a caretaker government and elections are round the corner, in four to five months' time. Yet in the last two or three months, there has been a revival in business confidence.

The stock markets are generally irrational, but not so irrational as to not reflect some aspects of reality. These aspects of reality are that there are signs of turnaround in the economy, and the markets are picking up these signals. So I don't think there is such a close link between political stability and economic performance. Even in the days when we had political stability, it was not stability that contributed to economic performance but good governance.