Govt ‘lost sight of the ball’ amid economic warning signs

“It’s just all accumulating together. We have frayed relations with the U.S. over tariffs, we are on the wrong side of the AI mania, we are a big energy importer during an Iran conflict, and we have El Niño to deal with. The government needs to think as passionately about getting foreign capital back — perhaps through tax cuts — as they do about elections. Private investment is stagnant because the ground-level business environment remains difficult due to regulation and investigative agencies. India consistently disappoints both the optimist and the pessimist. We still have the second or third most expensive stock market in the world, which is a note of caution.” (Indian Express, May 12, 2026).

I did not say those words, so the trolls may relax. It was a statement by Mr Ruchir Sharma (author of The Rise and Fall of Nations, What went wrong with Capitalism, etc.). It is a virtual indictment of the BJP government’s management of the economy. But I admit to expressing views on the same lines — especially about the frayed relations with the U.S., getting foreign capital back, the unfriendly regulatory environment, the role of investigative agencies, and so on. These issues were hidden from the public’s information and were cleverly side-tracked during parliamentary and public debates.

In a Corner

Pushed into a corner, a week after the results of the four-States elections, the Hon’ble prime minister, Mr Narendra Modi, made a remarkable confession. For the government’s sins of omission and commission, Mr Modi asked the people to make sacrifices.

The stark facts are:

• the U.S./Israel vs Iran war will complete 3 months on May 31, and the end is not in sight;
• all West Asian countries are involved in the war one way or other;
• the price of Brent crude is hovering around USD 107 per barrel;
• the rupee is at its lowest level at Rs 95.70 to a U.S. dollar;
• the official number of CPI inflation is 3.5 per cent and food inflation is 4.3 per cent;
• domestic LPG cylinder costs Rs 913 and commercial cylinder R‎s 3071-3237; WPI inflation is 8.3 per cent.
• net foreign investment in April-December 2025: FDI — a modest USD 3 billion, FII/FPI — negative USD 4.3 billion;
• private capital investment intentions in 2025-26 totaled Rs 6.6 to 6.8 lakh crore;
• the value of gold imports in 2025-26 was USD 72 billion; and
• after the abolition of MGNREGS that gave work on average 50 days a year, there is no wage employment programme for the poor.

PM absolutely correct

The prime minister has asked the people to do several things. Since the prime minister did not notice that his ministers were sleeping on their jobs, he had no choice but to make an appeal directly to the people. Gold imports must be curbed; austerity must be observed; self-restraint must be exercised in fuel consumption, cooking oil and fertilizers; unnecessary imports must be avoided; and so on. But what the prime minister needed to do was a critical analysis of his government’s performance.

The prime minister is the most profligate in fuel consumption: he flies out of Delhi practically every day (and returns to Delhi) for inaugurations and even swearing-in of governments. His convoy was the longest, he has now curtailed it. His minister of finance has not once spoken about the fragile financial situation today (while she rejoices that under UPA one investment bank clubbed India with four countries and described India as a fragile economy). She does not acknowledge that the ‘taper tantrum’ triggered a world-wide financial crisis in 2013-14 or that the UPA took hard measures (which the BJP mocked), and the situation was retrieved. The proof of the pudding are the following results, particularly the GDP growth rate: -

	2012-13	2013-14
Revenue Deficit	3.6%	3.2%
Fiscal Deficit	4.9	4.5
Current Account Deficit	4.8	1.7
GDP growth rate	5.5	6.4
Forex Reserves (USD)	292 bn	304 bn (after low of $275 bn)
Year-end Re/USD rate	Rs 54.39	Rs 60.10 (after low of Rs 68.85)
Source: GOI, MOSPI, RBI & CGA

The minister of commerce has been on a FTA-signing spree. By last count, he has concluded 9 Free Trade Agreements in the last 5 years. But then came the warning from the Chief Economic Adviser (CEA): there is a substantial gap between what the trade deals promise and what the regulatory frameworks actually allow.

To Do List

It is obvious that the prime minister wants to compress the CAD, augment the foreign exchange reserves and stabilize the exchange rate. He is absolutely correct.

So, back to Mr Ruchir Sharma. The prime minister’s plate is full. He must re-visit the regulatory regime (RBI, SEBI, CBDT, CBIT, Ministry of Commerce, Ministry of Corporate Affairs, among others); roll-back the present regime which is as oppressive and control-oriented as the pre-liberalisation regime; and sternly rein in the investigative agencies and do not use them for oblique or political purposes; stabilize the exchange rate; and reduce the tax rates. Once these things are done, foreign capital will come back to India. He cannot do these with the present ministers (mostly, market sceptics). He must take the help of well-meaning and wise persons.

I suggest the prime minister appoint a market-friendly expert as the leader and allow the leader to choose the other team members, and advise on the urgent measures within 15 days.