History is witness to the fact that politicians are often finally consumed by the fires they help light. In the Indian sub-continent, we have had two former Prime Ministers and one Prime Minister in office being thus consumed...

I couldn't help wondering if this analogy would hold true for politicians lower in the pecking order. Take, for example, one of our very bright ministers who has knowingly or unknowingly displayed an unbecoming propensity to making or egging on stock market sensitive announcements.      

Browse through these recent developments and judge for yourself.

Reserve Bank of India (RBI), in its half yearly review meet last month (24 October 2008) kept the policy rates unchanged, but lowered its growth forecast to 7.5% and  maintained its target of lowering inflation to 7%. Soon thereafter, the benchmark stock market indices went into a free-fall and closed lower by around 10% after an extremely volatile trading session.

Almost as an afterthought (and rumouredly on the insistence of the bright minister), RBI cut its benchmark repo rate by 150bps in two stages to 7.5% from a seven-year high of 9%. It also lowered the amount lenders must set aside as reserves to cover deposits (CRR) by 350bps in a month to 5.5% freeing up as much as Rs 1.4 trillion ($29.5 billion) to ease the liquidity crunch.

At a time when the biggest companies are cutting production and even contemplating temporary shut downs of units in the face of vertically dropping demand, some bankers  might have wondered for whom the liquidity crunch was being eased. I am certain that the bright minister did not intend it to be for promoters who use the stock market as an avenue to cover their business inadequacies. But alas, not everyone was so certain. Why, some even whispered loudly about NPAs and the like!   

Now, while the offtake of this enhanced liquidity may or may not have happened, there are no prizes for guessing where the bulls-eye was struck. The BSE Sensex gained over 1,700 points from its lows post this very ‘market-friendly’ announcement.

Having tasted blood in an otherwise anaemic market, yet another salvo was fired (yet again at the behest of this very bright minister) in the form of advise to some of the state-run banks in the country to reduce their lending rates by up to 75bps. Not surprisingly, State Bank of India, the country's largest PSU bank, fell in line very quickly and cut rates. In contrast, ICICI Bank, India’s largest private sector bank which seems to have far too much on its plate for now to kowtow to such bright suggestions, has kept its lending rates unchanged.

Emboldened perhaps by his success in imposing his bright ideas on the central bank and hapless PSU banks and compounded by the blind eye being turned to his ‘brilliance’ by his superiors in the ruling party, the bright minister now set his eyes on the treasuries of non-banking public sector undertakings (PSUs). Resultantly, the central public sector enterprises (CPSEs) have been advised to park at least 60% of their surplus funds amounting to over Rs 100,000 crore with public sector banks (PSBs) and desist from calling for competitive bids for making such deposits. That the shareholders of these PSUs including the government of India will get short-changed by implementing this scheme of brilliance is perhaps just incidental.

History suggests that the brilliance of this minister will finally consume himm and given the proximity of the general elections, perhaps his party too.

The moot question that remains is - will this last flicker of brilliance lay the roots of consumption of our economy too in the near term, which is, in any case, fraught with the dangers emanating out of the global recession? 

If it does, it will be ironical given that we will yet again be proving what history suggests – we are more capable of inflicting damage on ourselves than external factors and forces are!