"Men do not accept
their prophets and slay them, but they love their martyrs and worship those
whom they have tortured to death. "
—Fyodor Dostoevsky (Russian,
1821-1881)
Word for the day
Circumferential (adj)
Surrounding; lying along the
outskirts; of, at, or near the circumference.
Malice towards none
Have you noticed, these days
no politicians talks about moral responsibility for anything!
First random thought this morning
Beginning 2014 Monsoon Session, the Congress Party and its allies
have disrupted every single session of parliament on an entirely different
pretext each time. For example, 2014 session was disrupted over Lalit Modi
travel document issue demanding resignation of MEA Sushma Swaraj and Rajasthan
CM Vasundhara Raje.
Each time, the Congress Party cited the issue leading to
parliament disruption as a serious issue of national interest. But in all cases
these issues were completely forgotten as soon as the session ended.
If it is a coincidence, it is very strange. If it is not, then both
Congress and BJP have lot to answer to the people of this country.
Politics and market - the debate never ends
In past two days I have received
many messages asking for my reaction to the recently concluded bypolls in the States
of Uttar Pradesh and Bihar. The inquisitions mostly center around political
repercussions, economic impact and stock market implications.
I am glad to offer my opinion,
with the rider that I am an independent observer of Indian politics and have no
affiliation or inclination towards any particular political party or group
thereof.
First of all, these bypolls have
to be put in right perspective.
In my view, rejecting these
bypolls as mere localized event and dwarfing it under the pretext of the recent
BJP victory in three north eastern states would be a mistake, a rather serious
one.
The three districts of Gorakhpur,
Allahabad (where Phulpur Lok Sabha Constituency is situated) and Araria have a
population of over 13million as against less than 10million population of
Tripura, Nagaland and Meghalaya.
These three constituencies are
also at the core of some significant political trends in the country.
For past 50yrs Gorakhpur Lok Sabha
constituency has been at the core of Hindu Rashtra politics. The Guru Gorakhnath
Math has been the fulcrum of socio-political activities of Gorakhpur since
1967. Since 1990, when BJP patriarch L. K. Advani undertook Rath Yatra for
building Ram Temple in Ayodhaya, the seat is consistently held by BJP.
Phulpur is one of the two
constituencies in Allahabad district of Uttar Pradesh. The seat was represented
by the first prime minister Jawaharlal Nehru (1952-1964) and his sister Vijaya
Lakshmi Pandit (1964-1969) and later V. P. Singh (1971-1977). Since 1989 the
seat is consistently held by the socialist parties (Janta Dal, SP and BSP),
except briefly by BJP (2014-2017).
The seat fully reflects the
dissipation of Congress Party in the State of UP since 1989 and emergence of
socialist forces. The other trend fully reflected by this constituency is the
emergence of Dalit and OBC communities as a potent united force in UP politics
which was traditionally dominated by elite Brahmin and Thakur families.
Araria, situated in North Bihar
and bordering Nepal, is one of the most poor and illiterate districts in the
country. Situated in Purnia division, Araria is a representative sample of the
India's social, political and economic problems. Perennially affected by floods
this district truly reflects the political apathy and exploitation. The district
has large Muslim population, which incidentally is the most poor, illiterate
and unhealthy segment. The birth place of legendary writer Phaneeshwer Nath
Renu, this is one of the sources from where forces of social justice gained
momentum in late 1980s and their subsequent degeneration into
exploitive and feudal paradigms.
With this background and based on
my interaction with people of Gorakhpur last week, I draw the following
conclusions from the recently concluded bypolls in these three Lok Sabha
constituencies.
Political repercussions
(a) In past five years, BJP, led by the Prime Minister Narendra Modi,
has raised aspiration levels of youth and farmers to new heights. Portraying
Gujarat model as panacea for all socio-economic ills, BJP promised miracles to
the populace.
That trance is beginning to
weaken, as a large section of population is unable to correlate their personal
circumstances with the tall claims of achievement made by the government and
BJP functionaries.
(b) No matter the make believe narrative in social media, Hindu
Rashtra and Ram Temple are no longer strong emotive issues with common people.
(c) The politics of UP and Bihar that gave an impression of turning
away from parochial caste and religious issues in past five year is slipping
back in the groove. There is nothing to suggest that this trend will
discontinue in next 12months.
(d) The traditional BJP voter —urban middle class, nationalist
(whatever it means) youth, traders and small businessmen, etc.— is disenchanted
and feeling betrayed by BJP. As reflected in Gorakhpur voting pattern, they
have not yet turned away from BJP, but have abstained from voting for BJP. If
their concerns are not addressed in next one year, in 2019 they may as well
vote against BJP.
(e) Congress Party continues to remain a non-entity in both UP and
Bihar. Given a weaker leadership, Congress faces the prospects of slipping into
oblivion if it cannot be a part of the non-BJP formation that will likely
emerge in next six months.
The strategy to wait through
Karnataka, Rajasthan and MP elections before taking a decision is fraught
with risks which the Congress Party cannot afford at this time, in my view.
(f) A coalition of strong regional parties is definitely in a
position to reduce BJP to below 200 mark in 2019 and thus opening the chances
of a Non-BJP government at center.
Economic impact
I am of the firm opinion that in
India economic policies and therefore financial markets are politics agnostic.
I do not see these bypoll results of their impact on Indian politics going
forward changing this opinion in any manner.
A study of the history of Indian
politics would suggest that unlike western democracies only an abysmal minority
of Indian voters are strongly committed to a political or socio-economic
ideology.
The political discourse in India
is usually dominated by contemporary issues and personalities. The economic
issues raised during elections are mostly confined to the slogan of poverty
alleviation. In recent times corruption has also become a popular
electioneering slogan.
Perhaps, no political party seems
to have taken issues of poverty alleviation or corruption seriously. Therefore
no one has bothered even to outline a conceptual or ideological framework for
solving these problems.
Ideologically, the Congress Party
abandoned the most acceptable and perhaps most suitable Gandhian Socialism in
favor of Nehruvian Socialism that was a poorly mixed concoction of Leninist
central planning (central ownership and management of resources and businesses)
and British colonial legacy (discretionary patronage to the faithful and
loyal).
The model was certainly at
cross-purpose with the constitutional federal structure. Poverty, poor
governance and corruption were natural off-springs of this system.
BJP started with Deen Dayal
Updhaya's Integral Humanism. However, in 1990s it adopted Gandhian Socialism
(which is not too far moved from the Integral Humanism) as the principal
doctrine. The present leadership has however presented again a poorly mixed
concoction of Integral Humanism and Laissez-faire model used by some developed
economies principally USA.
Politically leadership preaches
"Human Being" as the fulcrum of policy making. Whereas the executive
is more focused on "Business" and "Macroeconomics" as the
central theme. The conflict is for everyone to see. The consequence is that we
seem to be moving in no direction.
The people at the left end of the
spectrum exercised significant sway on the bottom of the pyramid in Indian
society since independence. They controlled most of labor unions. Though
divided between Marx, Lenin and Mao they still were the preferred choice of
landless, oppressed and intelligentsia. There was a time when being poor,
intelligent (economist, thinker, poet) or rebellious meant being communist.
The things however began to change
in late 1980s post dismantling of USSR and the German wall. The Lenin and Marx
were relegated to the history lessons. The economic reforms initiated in China
under Deng Xiaoping's supremacy, further pushed back the traditional Marxists.
Insofar as the socialist parties
occupying the left of the center space in Indian politics are concerned, they
deserted both Lohia and his ideologue Gandhi as soon as they came into power.
Degenerated into motley feudals they show little commitment or preference to
any specific economic idea.
As I have been reiterating rather
frequently, that the governments in past 25years have mostly adopted similar
socio-economic policies consistently irrespective of their form or
constitution.
The Ctrl C + Ctrl V has been the
most preferred practice in formulation of most government policies and
programs, with some semantic changes to give it a different hue.
For example consider the following:
1. The process of
meaningful tax reforms was started by the then finance minister V. P. Singh
(Congress 1984-89) by rationalizing the tax slabs, lowering maximum marginal
tax rates substantially, rationalizing wealth tax and introducing CENVAT. The
recommendations of Raja J. Chelliah Committee (1991-93) on tax reforms
constituted by the government (Congress 1991-96) have since formed the basis of
tax reforms in India. All successive governments have implemented these
recommendations. No government has sought to reverse or alter the process
started by Congress government (1984-89). These recommendations formed the core
of the now discarded Direct Tax Code. The origin of the tax proposal like lower
tax rate with lesser exemptions and no wealth tax could also be traced to that.
Committees formed under the chairmanship of other members of Raja
Chelliah committee like Govinda Rao, Partha Shome and Vijay kelkar etc.
subsequently updated the recommendations to provide further impetus to the
entire process of tax reforms in the country.
It was the Finance Minister of H. D. Devegoda led United Front
government who presented the most talked about "dream budget".
2. The recommendations of
Narsimham Committee (1991-92) appointed by Dr. Manmohan Singh, the then finance
minister in the Congress government, have largely formed the basis of financial
and banking sector reforms in the country. Most successive governments have
implemented the recommendations consistently. In fact, P. Chidambram, the then
finance minister in United Front government (1998) had re-appointed the
Narsimham Committee to make recommendations about the second generation banking
sector reforms. The report was submitted in 1999 to the NDA government which
accepted the recommendations. However, almost all governments have failed in
building wider consensus on these recommendations and have failed to implement
many of them. But acceptance and rejection has been very consistence
irrespective of form and constitution of govt.
3. The BJP led NDA
government enacted the Fiscal Responsibility and Budget Management Act (FRBMA)
in 2003. The arch rival Congress led UPA-I government implemented the same in
2004 in letter and spirit. This still forms the very basic of fiscal discipline
both at central and state levels, though implementation was suspended in 2009
in the wake of global crisis. In FY13 stimulus withdrawal commenced. The
incumbent govt. has committed to achieve the targets in next two years.
4. The minority government
of Chandrashekhar introduced disinvestment policy first time in 1991. Every
successive government since then has not only accepted the policy in principle
but also tried to actively integrate into the evolving economic model. Almost
all of them have consistently failed in implementing the policy in right
spirit.
5. Single national market
(GST) as a desirable idea was conceived long ago. Many governments deliberated
and developed the idea. The incumbent government has finally implemented it as
the time for it has come Now. The infrastructure and logistics considered
necessary for rolling out GST has reached the stage of acceptability only
recently.
6. Programs such as
cleaning the holy rivers of Ganga & Yamuna and provision of toilets in
every home have been accorded priority by all successive governments.
7. One of the key areas of
corruption in public life has been the executive's right to allocate natural
resources for commercial exploitation. The Supreme Court effectively curbed
that right in its judgment in allotment of 2G spectrum case.
The auction based transparent regime is outcome of the Court
directed process, which is mostly irreversible and therefore party agnostic.
From the above cited example, it is evident clear that the
direction of policy has been mostly same on most accounts during the past three
decades. The difference lies in the execution.
It is however important to note that the P. V. Narasimha Rao led
Congress government and Atal Bihari Vajpayee led NDA government made many
historic departure from the past and took many new policy initiatives.
The end of Nehru era's license, quota & permit raj, abolition
of capital controls and introduction of LERMS, entry of private players in
civil aviation, opening of financial sector, etc. were some major path breaking
reforms introduced by P. V. Narasimha Rao government.
Divestment of major government monopolies like power, roads,
wireless communication, ports, airports, insurance & hydrocarbons, focus on
rural connectivity, deregulation of fuel pricing, and liberal FDI regime were
the key new policy initiatives during the Vajpayee led NDA regime.
The 10years of UPA regime introduced a new paradigm in Indian
socio-economic milieu, viz., the Right based Socio-Economic regime. Right to
Work, Right to Food, Right to Education, Right to Information, Right to Health,
etc. some of the ideas propagated in their regime.
Implementation of these right based entitlement has been patchy
and questionable, but no one has so far challenged the approach. In fact the
incumbent government has sought to partly implement the Right to Health that
was promised by UPA in last few weeks of its regimes, through a universal
health insurance scheme in the union budget for FY19.
The change that we have seen in the past four years of the
incumbent government's regime is the dominance of market economists (against
development & social economists before) in the consultative bodies of the
incumbent government. This suggests that we might see a new policy paradigm in
next few years. This change in my view is the outcome of the change in the global positioning of Indian
economy and markets. There is absolutely nothing to suggest that a change in
the government at center, would materially change this position in near term,
unless of course, the international developments completely change the global
balance of power and global market paradigm.
In short, the economic policy of
India is still a work in progress. all governments in India in past 30years
have built incremental changes in the policy framework in accordance with the
scale of economic development and changes in India's positioning in global
economic and strategic order.
Market implications
An analysis of past 30years of market trends provide no 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.
Insofar as the fear of third front or fractured
mandate is concerned I sincerely believe that 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” I do not mean
multi party governments. In my 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.
The incumbent government has taken two major initiatives that have
apparently helped Indian equity markets:
(a) Abolition of 86% of
currency notes in circulation in November 2016. This measure is popularly
believed to have benefitted the large organized sector businesses (mostly
listed) at the cost of smaller and marginal businesses (mostly unlisted).
(b) Implementation of GST
from July 2017. This is also popularly believed to have enhanced the
competitiveness of large businesses (mostly listed) at the cost of smaller
unorganized and non-compliant businesses.
However, the gains are neutralized by the unpredictability that
has crept into the policy framework and poor execution of these two measures.
Thus, in my view, the policy risks in India from politics side are low and
not to be much bothered about. The key risk is execution and this risk has
little to do with the form and constitution of the government of the day.
