You might be living in a bubble when the gurus on TV try to convince you that "things are different this time". You might be living in a bubble when the guy selling forms for initial public offerings (IPOs) outside the exchanges is touting the latest "growth story". You might be living in a bubble when price-earning multiples begin reading like a list of Sunil Gavaskar's centuries (220, 221, 205, 236, etc). You might be living in a bubble when the only way to justify an anticipated (or prayed for) appreciation in prices is the previous increase. You might be living in a bubble when prices of assets were never higher in your lifetime (or in theirs).

Are we living in such bubbles? Turn down the television volume, take a good look around and, sure enough, it isn't too difficult to spot assets whose prices have been racked up to seemingly absurd levels by excessive speculation. Real estate prices have appreciated 100 per cent in less than a year; base metals have had an even headier run (zinc is up almost four times and copper has trebled in 18 months); the Indian stock market's benchmark index, the Sensex, gained 2,000 points in 48 trading days-it had taken 127 days for the 30-share index to move from 7,000 to 9,000.

The more crucial question, though, is: will these bubbles burst? As interest rates crawl up globally-and look good to climb a few more notches-and liquidity gets squeezed, money fuelling many of these speculative binges won't be as easy any more. That squeeze, coupled with a shift in fundamentals in key markets, is a perfect recipe for a blowout. And of course, if bubbles across asset classes start bursting one after the other, you can kiss the good times goodbye.

You won't have to, though. Sure, there have been speculative excesses in some assets. Real estate, for instance. But then demand from actual users outstripping supply may just about put the punters in the shade. As for equities, the man on TV is right: "Things are different this time." A huge consuming class has emerged in India, and as it burgeons further, those 300 million and counting will fuel economic growth. But don't expect that story to play out immediately on the Indian markets. One lesson learned the painful way last fortnight is, if markets run way ahead of fundamentals, they'll be brought down to earth sooner than later (particularly when global money conditions become difficult). The long term doesn't mean one or two or three years. Three decades is more like it.

How Policy Shouldn't Be Made

Crossed-connected: Clarity needed from government

The worrying thing about policy, especially that of the economic kind in India, is the touch of impermanence to it. Consider telecommunications. Today, India has a teledensity of anything between 12 and 15 per cent, depending on varying estimates of the country's population. The corresponding proportion was 7 per cent in 2003 and 2 per cent in 1998. On the basis of numbers alone, India's telecommunication policy should be deemed a success. If that isn't the case, it is because the growth of the industry (and the consequent sudden rise in teledensity) can be attributed to two significant changes in policy. The first, circa 1999, allowed companies that had bid huge licence fees to move to a benign revenue-sharing regime, and the second, circa 2004, allowed companies that had originally secured licences to provide fixed telephony services offer more lucrative mobile telephony ones by migrating to a unified licence. In both cases, the changes were necessitated by practical considerations: the first involved the economic health of all companies in the sector and their consequent ability to provide consumers with any sort of service at all, and the second involved protecting the interests of several million consumers who were already availing mobile telephony services being provided by fixed telephony companies. The original policy had envisaged that companies would, in return for their bids, get spectrum, essentially air-wave frequencies that they could offer their services in; the two changes made certain assumptions regarding current and future allocations of spectrum (these were never really articulated). The first assumption was that since licence fees had been replaced by revenue sharing, it was contingent on the government to make more spectrum available should a carrier need it (after all, more subscribers meant more money for it through revenue sharing). The second was that since one of the arguments proffered by the fixed telephony companies in their bid to offer mobile telephony services was the spectral efficiency of the technology they used (CDMA), they would get less spectrum as compared to those companies that had originally won licences to offer mobile telephony services. Even had the government articulated this to the fixed telephony companies in 2004, it is unlikely they would have minded: their single-minded intent then was market-entry, and in the case of one large telco, legitimising its mobile telephony services (and since most things in India are negotiable, they might have reasoned, they would deal with the spectrum issue when they came to it). The government's recent spectrum policy, now referred to a group of ministers, has run afoul of all these changes. For instance, in its present form, it recommends allocation on the basis of technology and subscriber base, which is in consonance with the changes of 1999 and 2004, but patently anti-competitive. Opting for a bidding system is an alternative, only that would render the revenue-sharing regime irrelevant. With the move to 3g (third generation telecom services), even 4g imminent, the government would be advised to, at least this time around, come up with a far more permanent solution.

A Leader For Tough Times

Castled: Hard times

One can't but help but feel sorry for Rahul Dravid. His young and inexperienced bunch of boys was expected to thrash the West Indies 5-0 in the One Day International series. Instead, they were drubbed 1-4. Captain Dravid and coach Greg Chappell were hailed as gods when the team was winning. But it's easy to lead when the tide's good. How they tackle the sudden slump in form will show how good their leadership skills really are.

But they aren't the only heroes being tested out. The feel good factor seems to have turned for several super achievers. The controversy over reservations in educational institutions has caught the Sonia Gandhi-Manmohan Singh team, which has proved so successful over the last two years, unawares. Result: for the first time since assuming power, the government is looking effete and leaden footed. The debate over taking economic reforms forward is almost an action replay of the row over quotas. The government, bullied by powerful vested interests, has abandoned any pretence of leadership and is simply letting events overwhelm it.

The stock markets, too, are facing tough times. Money managers and analysts who earned crores in salaries and commissions when the going was good, don't seem to have the right answers any more. Result: the boys are being separated from the men. Look around: the Army leadership is grappling with crises caused by "ketchup colonels" who fake encounters and libidinous jawans who rape women they're paid to protect; the judiciary, so punctilious about enforcing transparency in other wings of governance, wants its own actions out of the purview of the Right to Information Act; and the foreign policy establishment seems clueless about the future of the country's nuclear deal with the us.

But take heart; things aren't as gloomy as the above examples suggest. The churning that we're witnessing is akin to the process of purifying iron in a blast furnace. When the melting and alloying is over, what emerges is steel. Leadership has to go through the same process. And that's precisely what's happening now.