The high uncertainty is partly because of the multiple pressures that India is juggling. However, that can't be the whole story, as all Asian countries face the same external reality. Even the locally bred economic imbalances - which increased India's vulnerability - cannot entirely explain the multiplicity of scenarios. Nor can the infamous policy flip-flops, or the suspense-filled measures that are supposed to be announced one day but suddenly vanish - before once again returning to the limelight. Nor the frequent inter-institutional public face-offs in the local media, as if that is the right forum for formulating and debating policy.
All of the above play an incremental role in increasing uncertainty. But their role has been compounded by the myopic policy response. Firefighting and town planning have their own places, and one cannot replace the other. More often than not, India appears to have been in firefighting mode - with intermittent periods of stability, rather than the other way round. Inadvertently, perhaps, Indian policymaking is often in a perpetual mode of battling unintended consequences - and, more often than not, attempting to put out economic fires once they are raging rather than preventing them in the first place.
A few examples would be relevant here. Improving infrastructure is understandably a key input in pushing up the non-inflationary speed limit on economic growth. Now, increased lending to infrastructure was the main game in town for a few years up to the global financial crisis in 2008. Reported warnings about not compromising the merits of adequate due diligence were sometimes ignored in favour of a significant increase in lending to the sector. In some cases, this was done without commensurate focus on the quality of lending, or the realistic viability of projects. Today, the sector is a major headache for asset quality worries for banks, and is India's version of "too-big-to-fail".
Then there was the push to encourage more foreign borrowing by Indian companies in the run-up to the financial crisis, despite the concerns of the Reserve Bank of India (RBI). Managing the sizeable capital inflows was already a challenge, and the central bank was also raising local interest rates to check inflation. Going abroad offered a convenient and cheaper unhedged option for companies, since they expected the rupee to continue to appreciate.
Former RBI Governor Y V Reddy put a stop to the borrowing binge in 2007. That action, for which he was severely criticised, singularly prevented more painful fallout from the global financial crisis. But it did not prevent the inadequate preparation for dealing with the pressure of maturing external liabilities a few years later.
The exchange rate policy is also a good example of policy myopia. The rupee has depreciated a whopping 36 per cent since end-2007. That makes it the third-worst among the currencies of emerging economies. How was that allowed to happen? More recently, the rupee was stable for several months before policymakers were caught off guard by taper-related fears in May this year. Ironically, the reason for that temporary stability was the increased, policy-driven reliance on volatile capital inflows, which quickly reversed. What lulled policymakers into a false sense of comfort that capital inflows would remain one-way?
The chronic neglect of retail inflation and its adverse impact on the rupee's internal purchasing power, the misreading of the shifting global liquidity dynamics which prompted the ill-conceived July tightening measures, and a lack of understanding of the pressures created by having liberalised product markets well before reforming factor markets are a few other casualties of policy myopia.
The handling of the much-talked-about inclusion of India in global emerging market government bond indices will dictate if myopia trumps medium-term stability. India needs foreign capital and it also needs to deepen presence in local currency debt markets. But these steps have to be taken from a position of strength and with adequate assessment of the new risk factors. Hopefully, some important lessons have been learnt from recent palpitations. Encouragingly, policymakers have taken some steps, and India is better prepared now to deal with external risks (thanks also to the delay in the US' taper), but only after being shaken up out of its complacency.
There is also the issue of policymakers' low credibility, and a view - cemented repeatedly - that they react only when their back is against the wall. There is a lot of self-serving talk about credibility since the government has managed to cut the current account deficit, mainly by banning gold imports. It has also promised not to exceed the red line on the fiscal deficit. It deserves credit for both. But the poor quality of the adjustment in India's twin deficits shouldn't be ignored. Banning gold imports doesn't change the fact that there's a high demand for the metal because of several factors, including uncomfortably high retail inflation.
Separately, spending cuts late in the year to meet the fiscal deficit target when expenditure has run amok for most of the year is hardly a welcome style. Policy credibility is earned after repeated quality delivery on targets, and it should go beyond just delivering on the headline outcome. But apparently, in India, one point is sufficient to make a straight line!
India's economic long-term outlook has always been bright; the key issue remains whether it'll be a flickering 50-watt bulb or a floodlight capable of delivering in even nasty weather conditions. Essentially, will India's growth improve but get stuck in the 6-6.5 per cent range in the next couple of years, or will there be constructive actions that will unlock more of the growth potential?
The future is always uncertain, unless of course one is a soothsayer. Policymakers should realise that repeating bullish eight or nine per cent growth forecasts does not mean that that will soon be the most likely outcome. They have another opportunity to get their act together, and to focus on the quality of India's growth dynamics and for ensuring a lasting non-inflationary growth upturn. Reversing the myopic tendencies will play a crucial constructive role. But this myopia has to be acknowledged first before it can be corrected.
The writer is senior economist at CLSA, Singapore.
These views are his own