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Strategy
Capital Ideas
Assembly elections: Expect a stable Centre. Kicking off our election analysis, Capital
Ideas, our investor forum with political analysts in Delhi on April 4, 2011, focused on
the transition phase in the politics of India. The upcoming assembly elections are
expected to provide the central government with more stability: The Indian National
Congress (INC) is widely thought to be in a sweet spot. Political analysts now focus on
the 2014 general elections: Who will lead the INC and the Bharatiya Janata Party (BJP)?
How will the Left remain relevant?
Mahesh Rangarajan, political analyst: Transition time in the political landscape
Mr Rangarajan anticipates changes in West Bengal and Kerala while AIADMK holds the edge in
Tamil Nadu. He points out that Assam has never seen a government being re-elected thrice: A
repeat of the pattern, which would mean the ouster of the incumbent Congress government,
could prove to be a dampener for the INC. Key factors that will define the political landscape in
the decade ahead: (1) Transition from Sonia Gandhi to Rahul Gandhi in INC, (2) from Lal Krishna
Advani to a trio of next-generation leaders in BJP and (3) a transformation of the Left (post its
anticipated defeat).
Dr. Sanjaya Baru, Editor, Business Standard: All is well
A bullish Dr. Baru sees sustainable growth of 8-9% for the Indian economy as a given, at least in
the medium term (3-5 years) driven by high savings and investment rates. He draws comfort from
infrastructure projects getting off the ground (he is especially bullish on the Delhi-Mumbai
Industrial Corridor, or DMIC) and the action against corruption. He does not see instability in the
Centre till 2014, but is apprehensive of possible global uncertainty affecting India due to a change
in the Chinese leadership in 2012.
Schedule of state assembly elections: Long wait for the results
The election schedule for the four states and one Union Territory—Kerala, Tamil Nadu and
Puducherry vote on April 13; Assam votes in two phases on April 4 and April 11 and West Bengal
votes in multiple phases on April 18, 23 and 27 and May 3, 7 and 10. Results will be declared on
May 13. There are no more state assembly elections scheduled for this year. The first half of the
next calendar year will see elections in Uttar Pradesh, Uttaranchal, Punjab, Manipur and Goa.
Tackling Maoism
The rise of Maoism is a direct result of the failure to facilitate the trickling down of India’s 8-9%
growth to the affected areas: If economic opportunities can be created and the population
employed, a large part of the problem will vanish. Since most of these areas are forested, coopting
the Forest Department into action is important (the Forest Department is the largest
landowner in the country at around 23% of India’s area). The Forest Rights Act and the recent
moves like Minimum Support Prices (MSP) for minor forest produce (MFP) are good ideas: They
can create a more vibrant local economy—just like the increased MSP in agricultural produce has
created better terms of trade for agriculture.
MAHESH RANGARAJAN: Transition time in the political landscape
Key takeaways
Mr Rangarajan anticipates changes in West Bengal and Kerala while AIADMK holds the edge
in Tamil Nadu. Assam has never seen a government being re-elected thrice: A repeat of the
pattern, which would mean ouster of the incumbent Congress government, could prove to
be a dampener for the INC. Key factors that will define the political landscape in the decade
ahead: (1) Transition from Sonia Gandhi to Rahul Gandhi in INC, (2) from Lal Krishna Advani
to a trio of next-generation leaders in BJP and (3) a transformation of the Left (post its
anticipated defeat).
West Bengal. Mr Rangarajan expects a coalition government led by Mamata Banerjee of
the Trinamul Congress (TMC) and supported by the INC. This coalition structure will
provide the INC with comfort at the national level. The decimation of the Left here will
possibly lead to a change in the mindset of the Left (an evolution from the Marxist
philosophy towards socialist-democracy)—this could lead to the Left becoming more
relevant in the future elections.
Tamil Nadu. “The road to Delhi comes via Chennai”—the outcome in Tamil Nadu will
determine the state of affairs at the Centre: He pointed out that since 1996, the regional
parties from Tamil Nadu have almost always been an important part of the alliance at the
Centre. The AIADMK holds the edge in these elections (it seems the television sets that
the DMK, the current ruling party, distributed in the last elections have helped spread the
news on corruption on a national scale).
Either result should be a boost to the INC. Mr Rangarajan believes that an AIADMK
victory will lead to more stability at the Centre, with the DMK becoming more dependent
on the INC. On the other hand, a DMK victory will see the INC becoming a part of the
state cabinet: A very important milestone for the INC which has been sidelined by the
regional parties in the state.
Assam, Kerala and Puducherry. These two states and the Union Territory do not
contribute a meaningful number of seats to the Central Legislature and hence the results
here are not very important from a national perspective. The Left-led LDF is expected to
lose in Kerala even as both sides, the INC-led UDF and the LDF, face severe corruption
charges. The fact that Assam has never elected the same party thrice could mean that the
INC will have a stiff task retaining the state.
Impact on national policymaking. Mr Rangarajan expects that the upcoming elections
will put the Left on the back foot and this will give an opportunity to the INC and the BJP
to work together in Parliament on many of the reforms that both the parties conceptually
agree to. He expects this list to include (1) a cut in fertilizer subsidies, (2) possible fuel
price decontrol, encompassing diesel and (3) pension and insurance sector reforms. He
does not expect much movement on the FDI in retail.
The era of transition. Mr Rangarajan sees the next few years as the era of transition.
Starting with 1989 when India first saw emergence of coalition governments to 1999
when the polity began becoming bipolar (with the two large parties leading more stable
coalitions) to 2009 when it emerged that the mandate for governance can be refreshed,
India has been through a significant learning phase in its democratic life. He now sees
India entering a phase of transition during which the leadership passes on to the younger
generation in three major formations: (1) From Sonia Gandhi to Rahul Gandhi in the INC,
(2) from Lal Krishna Advani to the trio of Narendra Modi, Sushma Swaraj and Arun Jaitley
in the BJP and (3) to a newer and younger set of leaders in the Left Front, whose current
central leadership seems to have lost the plot.
On policymaking. The 2009 elections, which gave the UPA a new mandate, made the
INC believe that there was no alternative to them for governing the country. A series of
scams later, the sheen is beginning to fade. The significant economic and regulatory
capture of the system (named variously as ’governance deficit‘ to ’coalition dharma‘) is
possibly driven by the fact that the Prime Minister has a limited political base and draws
his franchise from the party president, rather than the people of the country.
This dichotomy leads to various programs and policy changes being pulled in different
directions. Cases in point are (1) the Food Security Bill where there is a raging debate on
its scope and implementation and (2) various ministries defining their own agenda rather
than being led by a common shared vision for the country.
On environment. A discussion on the breeding ground for Maoism attributed its growth
squarely to the failure to facilitate the trickling down of India’s 8-9% growth to the
affected areas. Lack of basic infrastructure (no irrigation means that agriculture does not
even provide for 100 days of labor) compounds the problem. If economic opportunities
can be created and the population employed, a large part of the problem will abate.
Since most of these areas are forested, co-opting the Forest Department into action is
important (the Forest Department is the largest landowner in the country at around 23%
of India’s area). For a tropical country like India where it rains only for four months,
forests provide a very important ecological balance. The Forest Rights Act and the recent
moves like Minimum Support Prices (MSP) for minor forest produce (MFP) are good ideas:
They can create a more vibrant local economy—just like the increased MSP in agricultural
produce has created better terms of trade for agriculture.
DR SANJAYA BARU: All is well
Key takeaways
Setting a bullish tone, Dr Baru sees sustainable growth of 8-9% for the Indian economy as a
given, at least in the medium term (3-5 years) driven by high savings and investment rates.
He draws comfort from infrastructure projects getting off the ground (he is especially bullish
on the Delhi-Mumbai Industrial Corridor, or DMIC) and the action against corruption. He
does not see instability in the Centre till 2014, but is apprehensive of possible global
uncertainty affecting India due to a change in the Chinese leadership in 2012.
Sustained growth. With a savings rate of ~35% and an investment rate of ~37%, Dr.
Baru sees no threat to the continued economic growth of India. He sees an 8-9% growth
corridor as a stable range within which India can grow: Higher growth than this exposes
the infrastructural bottlenecks in the country (whether reflected in higher inflation or
higher manpower costs) and can also cause widespread inequality, both in terms of
wealth and income. With India addressing its twin deficits of infrastructure and
governance, the stage is set for India to traverse the same high growth path that China
set out on a decade or two before India.
He believes that India needs to work on redistributing its growth potential. The current
fastest growing states or regions are the less populous ones: The real growth has to come
in from the more populous areas. The benchmarks for creating growth are so low in
some of these states (like Bihar, Uttar Pradesh, etc.) that the desired growth can easily be
achieved.
Governance deficit. Dr Baru he thinks that the issue is blown out of proportion and the
holier-than-thou attitude is not required. Not a single businessman, he says, has complained
to him about policy paralysis or corruption (he meets many as a media person). They are
happy with the overall economic growth which is helping them get better top-line and
bottom-line growth and hence they have nothing to complain about. On infrastructure
creation, he believed that India is getting its act right, especially with the Delhi-Mumbai
Industrial Corridor. He believes there is progress on roads and power sector too.
Current account deficit. Conceding that India is seeing a significant rise in the
outbound FDI, he does not think that this is driven by diversification of political risk. It is
more a coming of age of Indian entrepreneurs who are moving to tighten their hold over
resources or acquire markets. He is comfortable with India funding its current account
deficit with portfolio flows: He expects them to be reasonably stable as he believes that a
significant portion of the flows is the black money that goes out of India!
A stable Center ahead. Dr Baru believes that the state assembly elections will stabilize
the Center—the INC can only emerge a winner in these elections, whatever the outcomes,
and there is not much at stake for the BJP. He believes that in the 2014 general elections
the Left could possibly come back significantly energized if the TMC-led alliance in West
Bengal fails to deliver. He does not see a mid-term poll till 2014: The INC does not want it
and until the succession issue in BJP is resolved, they too would not want the elections (as
an aside, he expects Narendra Modi to use these 2-3 years for an image makeover: His
gifting the Eklavya Awards to Munaf Patel and Yousaf Pathan is being seen as an example).
He believes that an under-appreciated threat for India is the change in the Chinese
leadership due in 2012. We could see the heightened jingoism during the transition
phase, which could queer the pitch with regard to China’s position on Arunachal Pradesh
and even perhaps Kashmir.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Capital Ideas
Assembly elections: Expect a stable Centre. Kicking off our election analysis, Capital
Ideas, our investor forum with political analysts in Delhi on April 4, 2011, focused on
the transition phase in the politics of India. The upcoming assembly elections are
expected to provide the central government with more stability: The Indian National
Congress (INC) is widely thought to be in a sweet spot. Political analysts now focus on
the 2014 general elections: Who will lead the INC and the Bharatiya Janata Party (BJP)?
How will the Left remain relevant?
Mahesh Rangarajan, political analyst: Transition time in the political landscape
Mr Rangarajan anticipates changes in West Bengal and Kerala while AIADMK holds the edge in
Tamil Nadu. He points out that Assam has never seen a government being re-elected thrice: A
repeat of the pattern, which would mean the ouster of the incumbent Congress government,
could prove to be a dampener for the INC. Key factors that will define the political landscape in
the decade ahead: (1) Transition from Sonia Gandhi to Rahul Gandhi in INC, (2) from Lal Krishna
Advani to a trio of next-generation leaders in BJP and (3) a transformation of the Left (post its
anticipated defeat).
Dr. Sanjaya Baru, Editor, Business Standard: All is well
A bullish Dr. Baru sees sustainable growth of 8-9% for the Indian economy as a given, at least in
the medium term (3-5 years) driven by high savings and investment rates. He draws comfort from
infrastructure projects getting off the ground (he is especially bullish on the Delhi-Mumbai
Industrial Corridor, or DMIC) and the action against corruption. He does not see instability in the
Centre till 2014, but is apprehensive of possible global uncertainty affecting India due to a change
in the Chinese leadership in 2012.
Schedule of state assembly elections: Long wait for the results
The election schedule for the four states and one Union Territory—Kerala, Tamil Nadu and
Puducherry vote on April 13; Assam votes in two phases on April 4 and April 11 and West Bengal
votes in multiple phases on April 18, 23 and 27 and May 3, 7 and 10. Results will be declared on
May 13. There are no more state assembly elections scheduled for this year. The first half of the
next calendar year will see elections in Uttar Pradesh, Uttaranchal, Punjab, Manipur and Goa.
Tackling Maoism
The rise of Maoism is a direct result of the failure to facilitate the trickling down of India’s 8-9%
growth to the affected areas: If economic opportunities can be created and the population
employed, a large part of the problem will vanish. Since most of these areas are forested, coopting
the Forest Department into action is important (the Forest Department is the largest
landowner in the country at around 23% of India’s area). The Forest Rights Act and the recent
moves like Minimum Support Prices (MSP) for minor forest produce (MFP) are good ideas: They
can create a more vibrant local economy—just like the increased MSP in agricultural produce has
created better terms of trade for agriculture.
MAHESH RANGARAJAN: Transition time in the political landscape
Key takeaways
Mr Rangarajan anticipates changes in West Bengal and Kerala while AIADMK holds the edge
in Tamil Nadu. Assam has never seen a government being re-elected thrice: A repeat of the
pattern, which would mean ouster of the incumbent Congress government, could prove to
be a dampener for the INC. Key factors that will define the political landscape in the decade
ahead: (1) Transition from Sonia Gandhi to Rahul Gandhi in INC, (2) from Lal Krishna Advani
to a trio of next-generation leaders in BJP and (3) a transformation of the Left (post its
anticipated defeat).
West Bengal. Mr Rangarajan expects a coalition government led by Mamata Banerjee of
the Trinamul Congress (TMC) and supported by the INC. This coalition structure will
provide the INC with comfort at the national level. The decimation of the Left here will
possibly lead to a change in the mindset of the Left (an evolution from the Marxist
philosophy towards socialist-democracy)—this could lead to the Left becoming more
relevant in the future elections.
Tamil Nadu. “The road to Delhi comes via Chennai”—the outcome in Tamil Nadu will
determine the state of affairs at the Centre: He pointed out that since 1996, the regional
parties from Tamil Nadu have almost always been an important part of the alliance at the
Centre. The AIADMK holds the edge in these elections (it seems the television sets that
the DMK, the current ruling party, distributed in the last elections have helped spread the
news on corruption on a national scale).
Either result should be a boost to the INC. Mr Rangarajan believes that an AIADMK
victory will lead to more stability at the Centre, with the DMK becoming more dependent
on the INC. On the other hand, a DMK victory will see the INC becoming a part of the
state cabinet: A very important milestone for the INC which has been sidelined by the
regional parties in the state.
Assam, Kerala and Puducherry. These two states and the Union Territory do not
contribute a meaningful number of seats to the Central Legislature and hence the results
here are not very important from a national perspective. The Left-led LDF is expected to
lose in Kerala even as both sides, the INC-led UDF and the LDF, face severe corruption
charges. The fact that Assam has never elected the same party thrice could mean that the
INC will have a stiff task retaining the state.
Impact on national policymaking. Mr Rangarajan expects that the upcoming elections
will put the Left on the back foot and this will give an opportunity to the INC and the BJP
to work together in Parliament on many of the reforms that both the parties conceptually
agree to. He expects this list to include (1) a cut in fertilizer subsidies, (2) possible fuel
price decontrol, encompassing diesel and (3) pension and insurance sector reforms. He
does not expect much movement on the FDI in retail.
The era of transition. Mr Rangarajan sees the next few years as the era of transition.
Starting with 1989 when India first saw emergence of coalition governments to 1999
when the polity began becoming bipolar (with the two large parties leading more stable
coalitions) to 2009 when it emerged that the mandate for governance can be refreshed,
India has been through a significant learning phase in its democratic life. He now sees
India entering a phase of transition during which the leadership passes on to the younger
generation in three major formations: (1) From Sonia Gandhi to Rahul Gandhi in the INC,
(2) from Lal Krishna Advani to the trio of Narendra Modi, Sushma Swaraj and Arun Jaitley
in the BJP and (3) to a newer and younger set of leaders in the Left Front, whose current
central leadership seems to have lost the plot.
On policymaking. The 2009 elections, which gave the UPA a new mandate, made the
INC believe that there was no alternative to them for governing the country. A series of
scams later, the sheen is beginning to fade. The significant economic and regulatory
capture of the system (named variously as ’governance deficit‘ to ’coalition dharma‘) is
possibly driven by the fact that the Prime Minister has a limited political base and draws
his franchise from the party president, rather than the people of the country.
This dichotomy leads to various programs and policy changes being pulled in different
directions. Cases in point are (1) the Food Security Bill where there is a raging debate on
its scope and implementation and (2) various ministries defining their own agenda rather
than being led by a common shared vision for the country.
On environment. A discussion on the breeding ground for Maoism attributed its growth
squarely to the failure to facilitate the trickling down of India’s 8-9% growth to the
affected areas. Lack of basic infrastructure (no irrigation means that agriculture does not
even provide for 100 days of labor) compounds the problem. If economic opportunities
can be created and the population employed, a large part of the problem will abate.
Since most of these areas are forested, co-opting the Forest Department into action is
important (the Forest Department is the largest landowner in the country at around 23%
of India’s area). For a tropical country like India where it rains only for four months,
forests provide a very important ecological balance. The Forest Rights Act and the recent
moves like Minimum Support Prices (MSP) for minor forest produce (MFP) are good ideas:
They can create a more vibrant local economy—just like the increased MSP in agricultural
produce has created better terms of trade for agriculture.
DR SANJAYA BARU: All is well
Key takeaways
Setting a bullish tone, Dr Baru sees sustainable growth of 8-9% for the Indian economy as a
given, at least in the medium term (3-5 years) driven by high savings and investment rates.
He draws comfort from infrastructure projects getting off the ground (he is especially bullish
on the Delhi-Mumbai Industrial Corridor, or DMIC) and the action against corruption. He
does not see instability in the Centre till 2014, but is apprehensive of possible global
uncertainty affecting India due to a change in the Chinese leadership in 2012.
Sustained growth. With a savings rate of ~35% and an investment rate of ~37%, Dr.
Baru sees no threat to the continued economic growth of India. He sees an 8-9% growth
corridor as a stable range within which India can grow: Higher growth than this exposes
the infrastructural bottlenecks in the country (whether reflected in higher inflation or
higher manpower costs) and can also cause widespread inequality, both in terms of
wealth and income. With India addressing its twin deficits of infrastructure and
governance, the stage is set for India to traverse the same high growth path that China
set out on a decade or two before India.
He believes that India needs to work on redistributing its growth potential. The current
fastest growing states or regions are the less populous ones: The real growth has to come
in from the more populous areas. The benchmarks for creating growth are so low in
some of these states (like Bihar, Uttar Pradesh, etc.) that the desired growth can easily be
achieved.
Governance deficit. Dr Baru he thinks that the issue is blown out of proportion and the
holier-than-thou attitude is not required. Not a single businessman, he says, has complained
to him about policy paralysis or corruption (he meets many as a media person). They are
happy with the overall economic growth which is helping them get better top-line and
bottom-line growth and hence they have nothing to complain about. On infrastructure
creation, he believed that India is getting its act right, especially with the Delhi-Mumbai
Industrial Corridor. He believes there is progress on roads and power sector too.
Current account deficit. Conceding that India is seeing a significant rise in the
outbound FDI, he does not think that this is driven by diversification of political risk. It is
more a coming of age of Indian entrepreneurs who are moving to tighten their hold over
resources or acquire markets. He is comfortable with India funding its current account
deficit with portfolio flows: He expects them to be reasonably stable as he believes that a
significant portion of the flows is the black money that goes out of India!
A stable Center ahead. Dr Baru believes that the state assembly elections will stabilize
the Center—the INC can only emerge a winner in these elections, whatever the outcomes,
and there is not much at stake for the BJP. He believes that in the 2014 general elections
the Left could possibly come back significantly energized if the TMC-led alliance in West
Bengal fails to deliver. He does not see a mid-term poll till 2014: The INC does not want it
and until the succession issue in BJP is resolved, they too would not want the elections (as
an aside, he expects Narendra Modi to use these 2-3 years for an image makeover: His
gifting the Eklavya Awards to Munaf Patel and Yousaf Pathan is being seen as an example).
He believes that an under-appreciated threat for India is the change in the Chinese
leadership due in 2012. We could see the heightened jingoism during the transition
phase, which could queer the pitch with regard to China’s position on Arunachal Pradesh
and even perhaps Kashmir.
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