What does the prime minister mean when he speaks of reviving ‘animal spirits’? It sounds like an unusual metaphor coming from this mild-mannered and soft-spoken man.

Yes, the phrase may conjure images of some shaman working up bizarre rituals, but it is actually part of economists’ jargon (which explains why Manmohan came to use it). It was coined by the great economist John Maynard Keynes in his classic “The General Theory of Employment, Interest and Money” (1936).

What he meant by the term is simply that there is a sort of x factor in business and economy that goes beyond policies and numbers, call it trust or confidence, which propels businessmen to go for it, make new investments even if the scenario is rather depressing, or propels consumers to go and buy stuff that they otherwise might not have given the depressing scenario.

The Economist (that is, the British weekly) explains ‘animal spirits’ this way:

‘The colourful name that Keynes gave to one of the essential ingredients of economic prosperity: confidence. According to Keynes, animal spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.’

As for what Keynes himself originally wrote, here is the original passage [Courtesy Wikipedia]

“Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

But why Keynes? Why now?

Keynes’s classic work was in response to the Great Depression of 1929. When comparisons were dran between the global financial meltdown of 2008 onwards and the Great Depression, economists obviously turned to Keynes for a way out. This led to a resurgence of interest in Keynes, so much that the phrase ‘animal spirits’ figures in the title of a couple of economics books recently. For more, one again, refer to Wikipedia, which also mentions that Manmohan Singh is among those policy-makers who have drawn inspiration from Keynes: he advocated the Keynesian fiscal stimulus at the G20 summit in Washington in 2008.

Will it work? Will Manmohan be able to revive ‘animal spirits’ and take the Indian economy back to 8+ growth rates?

These ‘animal spirits’, of course, cannot be revived by chanting of some mantra, which is what a mere statement on Twitter looks like [See Twit: PM directs Finance Ministry officials: "Revive the animal spirit in the country's economy."] ‘Animal spirits’ involve values like trust and confidence, which seem to be in rather short supply these days, especially after all the bungling in the coal sector and telecom policy and so on.

Is Manmohan Singh signalling a fresh beginning? Circumstances indeed favour that. He is back in the finance ministry, even if only till the reshuffle. The presidential nominee is decided – and he is not the one, UP results mean the talk of a Rahul takeover is over for a while. So Manmohan Singh can take charge again.

But, all the same, it looks like a tough task for the prime minister to boost the economy. There are what he calls coalition compulsions – a euphemism for the lack of political will, partly due to the fact there are two power centres in the capital.