Prime Minister Manmohan Singh probably understands the Indian economy more intimately than anyone else on earth. An Oxford PHD who served as both governor of the Reserve Bank and finance Minister, Singh’s leadership in the 1990’s set the stage for the miraculous rise of India as a major economic power. Taking the opportunity presented by the terrorist attacks in Mumbai, Singh has shuffled Palaniappan Chidambaram to lead the home ministry and assumed control of the finance portfolio personally.
The temptation for Singh is understandable, but the decision is foolhardy. With global demand in freefall and credit markets frozen, the potential impact on growth on the India’s economy and fragile society (where over 25% of the population lives in miserable poverty) is disastrous. Singh’s credibility as a leader may do much to restore confidence but, like a football coach that decides to suit up and run onto the field as quarterback himself, Singh’s decision to take on another ministry (he already runs six others) subverts the chain of command.
Singh’s decision will divide his focus during the most serious national security crisis his nation has faced in decades and will force him to manage the economy day-to-day while preparing for a tough election this year.
Export data released today by the Ministry for commerce shows what Singh is up against with a year-over-year decline of 12.1%, the first decline since 2001. If you read our post on Friday you know that we found Minister Chidambaram’s assertion that domestic demand will make up for contracting foreign markets absurd. Singh taking the reins may shore up investor confidence in the near term, but even he can’t fight the tide of cooling global growth.
We are short the Indian market via IFN.