Thought for the day
“The most perfect political community is one in which the middle class is in control, and outnumbers both of the other classes.”
-Aristotle (Greek, 384-322BC)
Word for the day
Susurrant (adj)
Softly murmuring; whispering
(Source: Dictionary.com)
Teaser for the day
Does Crimea offer any lessons for Kashmir or vice versa?
Can Modi make a China out of India?
The limited implications of general elections in terms of
industry performance would be better visibility of order flow for capital goods
from 2015, improvement in working capital cycle. Improvement in capacity utilization
level would depend on the correction in inventory level, pick up in consumption
demand and higher government plan expenditure.
Moreover, from our rather personal interaction with voters we
understand that going into the election this time the dominant feeling of
voters is that of indignation at 10years of UPA rule; not just exasperation. It
is therefore not normal anti-incumbency.
The vote for Narendra Modi will therefore be largely a positive
vote rather than a negative vote against the incumbent government; and with
this begins the problem. A positive vote comes laced with humongous
expectations. The general Modi supporter believes with all his sincerity that
he is the divine intervention that will get rid of all the malaise plaguing the
country in no time.
Even agnostic voters, showing a tilt towards Modi this time,
believe that he would be reasonably successful in transporting Gujarat model of
efficient execution to the national scene. Even the detractors are criticizing
Modi more in historical context of 2002 Gujarat riots rather than his economic
agenda. Though some feeble attempts have been by likes of Arvind Kejriwal of
AAP, the criticism is just that – feeble.
We need to evaluate our investment strategy in this context. In
simple terms, it involves evaluating three scenarios, viz.,
(a)
What will change if Narendra Modi is successful
in his campaign to reach 7RCR?
(b)
What if NDA forms the next government, but Modi
staying back in Gandhi Nagar?
(c)
What if in a repeat of 1996 non-BJP non-Congress
formation forms the next government?
What will change if Modi occupies 7RCR?
A recent Financial Times article suggested that a Narendra Modi
victory will make India more Chinese. According to this theory, people are
attracted to Modi for the prospect of Deng-style growth. The supporters believe
that by sheer force of will Modi may be able to override some of the checks and
balances of Indian democracy and introduce some of the clearheadness of
growth-driven China. Under a Modi administration, the hope is, land will be
cleared, permissions will be granted, and roads and other infrastructure will
be built. In short he will do for India in its entirety what he has been able
to achieve for Gujarat.
As sated earlier also, from my own interaction with people I
found that Modi is being perceived as a divine intervention that would get them
rid of all the ills currently plaguing Indian society, politics and economy.
Businessmen in particular are expecting that Modi will at the least ensure the
following:
(a) Proactive, clean,
responsive and business/investment friendly administration.
(b) Proactive
administration.
(c) An accountable
and responsible administration in which bureaucracy is protected for bona fide
actions.
It is expected that by ensuring this he could deliver higher
economic growth and lower inflation.
Unfortunately, no one could produce an iota of substantive
evidence that would suggest that Modi could meet their expectations in the
timeframe they are considering.
As of now, in my view, Modi does appear assertive and has shown
tendency to take quick decisions in economic administration matters. A few quick
decisions could boost the sagging business sentiment. Fortunately, many other
things are already falling in place and may work in his favor.
In my view, the following positives could emerge if Narendra
Modi gets to lead the next government with a clear mandate:
(a) Business and
investor confidence may recover on the hopes that policy making will be
proactive, business friendly, consistent and faster.
(b) Important
economic and financial legislations like GST, DTC, Insurance and Pension Bills
etc. may get cleared in FY15 itself. In my view, BJP’s opposition to GST is
purely political and has nothing to do with their economic ideology.
(c) Important
administrative reforms are implemented to uplift the morale of bureaucracy.
This is expected to expedite the project execution.
However, contrary to popular sentiment, I do not agree that a
Narendra Modi led government could kick start the stalled investment cycle in
short term.
I broadly agree with the recently released Credit Suisse
strategy report highlighting that “Only a fourth of projects are stuck with the
central government, and two-thirds of these are in power and steel, both
wracked with massive overcapacity; thermal power utilisation is at two-decade
lows. Only state governments can revive power demand. Even elsewhere (roads,
railways, etc.), solutions will take years.”
On fiscal front Modi will have two options. (a) Aggressively
follow the Keynesian path – QE to spur demand and thus kick start the stalled
investment cycle; or (b) Follow a tighter policy – hike taxes, curb government
spending, target subsidies, control inflation, and reduce rates to motivate
capital flows and investments.
In my view, he will opt for the conventional, time tested and
recently successfully employed in western world path of QE. A confrontation
with RBI governor, who has been vocally opposed to this path would therefore be
inevitable – sending wrong signals to investors.
Given that the 2014 elections are being fought very
aggressively, and acrimoniously, I do not see consensus evolving on key social,
economic and financial reforms till the tempers cool down, may be two years
down the line.
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