<p>Yes, the market is a discounting mechanism: it discounts future events. But does it really discount events that far into the future? Barely two days after he took charge as finance minister — again — Palaniappan Chidambaram announced that he would soon present a blueprint for fiscal consolidation, greater clarity in tax law, review recent controversial changes in tax policy — like the retrospective application of general anti-avoidance rules or GAAR — and introduce measures for insurance and mutual funds to boost investment that has fallen to 32 per cent of GDP in FY12 from 38 per cent in FY08.<br /><br />The things that the finance minister said are obviously welcome, but if you are expecting instant results, perhaps dialling back some of those expectations might be a good idea. First, fiscal consolidation — as measured by achieving the fiscal deficit target of 5.1 per cut in FY2013 (as the first step) — is likely to be a long-drawn process. Economic and monsoon conditions being what they are, cutting back on spending is not very likely.<br /><br />Second, it’s not clear what the results of reviewing the GAAR and other tax policy changes introduced by the last finance minister will produce. Will some of the measures be revoked? We’ll have to wait and see, at least until the review is over, which could take a few months.<br /><br />Third, taking the investment to GDP ratio back to 38 per cent will take a lot of pushing; entrepreneurs and industrialists are holding back capital expenditure because of uncertainties beyond our shores. Those uncertainties will linger on for some time. Chidambaram will, in all probability, succeed, but not tomorrow, not next month, or the next year.<br /><br />Any announcement on mutual funds and insurance is read as domestic capital flows into the equity markets; actually, that could just as well be misread. People’s savings are not going into the market to the degree hoped because the faith in the market’s ability to reward investors is somewhat lacking. Like everything else, it will take time.<br /><br />So before you get up and dance to the positive rhythms of the music that the finance minister’s statement makes to your ears, pay a little attention to the tempo. It’s slow classical, not disco dandiya.<br /><br />(This story was published in Businessworld Issue Dated 20-08-2012)</p>