Vijay Kumar Gaba: Keep it simple

Thursday, June 20, 2013

Keep it simple — politics

Prior to 2009 elections, the scare of communists and Mayawati coming to power was so pervasive that nobody was willing to even reason why the communists were bad and why it was not questionable for Dr. Manmohan Singh to risk the government in the extremely tough global conditions, for civil nuclear deal whose benefits, if at all, would be seen only beyond 2020.

In our view equal credit for MNREGA and RTI, two major reforms done during UPA I should be given to the communists, who ensured that the Congress Party stays focused on the promise of inclusive growth and accountable administration.

We do not consider UPA II a coalition. TMC, NCP, DMK all have same socio-economic agenda as the Congress.

Heading into a major election, especially when the outcome is as uncertain as it could be, it is natural for investors to be jittery about the politics & policy environment and its likely impact on the financial markets.

We however find little evidence to suggest that elections, the form of government or strength of a particular party in the parliament impacts the market performance significantly. Though, usually it is common to see higher volatility during or around elections. We believe that higher volatility prior to next general election will certainly precipitate the market bottoming process.

Insofar as the fear of third front or fractured mandate is concerned we believe the investors should be relieved by the prospects of a true coalition coming to power. Because, post independence the best periods for the Indian economy have been those when a “coalition” government was in power.

It is however important to note that by “coalition” we do not mean multi party governments. In our view, coalition government means where people with different and many a time completely diverging socio-economic policies jointly participate in a government. They arrive at the common minimum agenda of agreement and focus on executing the same, hence avoiding conflicts and logjams.

The first cabinet of India post independence had R. K. Shanmukham Shetty (Finance), Shyama Prasad Mukherjee (Industries) B. R. Ambedkar (Law) and Jagjiwan Ram (Labor). These people did not subscribe to the Nehruvian socio-economic agenda, but we still got a robust socio-economic framework. The singular governments of Nehru (post BRA, RML, SPM - 1956 and 1961), Indira Gandhi (1971, 1980), Rajeev Gandhi (1984) are not really known for good governance or socio-economic reforms.

Morarji Desai (1977 – FERA dilution, Gandhian socialism), V. P. Singh (1989 – tax reforms, social justice), Chandershekhar (1990 – disinvestment, fiscal reforms), PV Narsingh Rao (1991 - liberalization, delicensing), Devegoda/IK Gujaral (1996 – dream budget), Vajpayee (1998, 1999 – divestment, infra development) and Manmohan Singh (2004 – RTI, MNREGA) were all coalition governments. These governments are all remembered for socio-economic reforms causing fundamental changes in the economy. None of these governments is remembered for non-governance, anti market policies or anti business stance.