Most political parties need time to prepare for elections
The foreign portfolio investors who have significant exposure to Indian stock markets are anxiously asking only one question these days: what sort of government will India have in 2014? Politics is uppermost in the minds of investors who have seen their dollar returns in the negative over the last 5 years. In recent times, I have interacted with a dozen long-term portfolio investors in India and Singapore who might have a total exposure of over $10 billion in the Indian markets. The only question they have is whether India will get a stable coalition government in 2014, or later this year if elections are advanced. Some Congressmen with better intuitive sense privately say the possibility of an earlier general election is 40% today as against 20% some months ago.
The foreign investors do not want general elections advanced simply because they would like to see some of the key policy initiatives taken by the UPA government over the past six months to translate into concrete action. In particular, they want the new Cabinet Committee on Investments (CCI) to speed up the implementation of the big infrastructure and energy projects which have been stuck for want of various clearances. Some of the foreign portfolio investors I have interacted with in recent months have significant exposure in companies running infrastructure and energy projects. These investors are particularly despondent as their investments may have got eroded by over 60% in rupee terms over the past 5 years. If you add the rupee?s depreciation in recent years, they may have lost close to 80% of their investments in infrastructure companies. In my view, this is the most tragic part of the India story from the foreign investors? standpoint?to lose so much wealth in sectors with the greatest potential!
At a macro level, the foreign portfolio investors do not want the general elections advanced because they want India?s GDP growth to recover directionally before elections are announced. Of course, the UPA also wants that the downward trajectory of the GDP growth gets reversed and, as projected in the Union Budget, growth rates come back to above 6% before elections are announced. No government would want to go into elections with GDP growth at 5% or thereabouts and consumer price inflation in double digits.
So, the UPA will make every effort to have general elections as scheduled in May 2014. But what are the chances that the UPA?s alliance partners/outside supporters may want to precipitate general elections by this year end? Both Mulayam Singh and Mayawati have made noises about being ready for general elections any time. But are they really ready? And do other non-UPA regional outfits such as the AIADMK and the BJD want an earlier election? More importantly, does the BJP want an earlier election, grappling as it is with its own internal leadership question? BJP?s alliance partner Nitish Kumar from Bihar has fired the latest salvo asking the BJP to name its Prime Minister candidate by the year end, the subtext being Nitish Kumar?s deep discomfort with the idea of Narendra Modi as the Prime Minister. The year-end deadline set by Nitish Kumar itself presumes that general elections are unlikely to be held by December 2013.
In my view, an earlier election can only be precipitated directly by either Mulayam Singh Yadav or Mayawati who support the UPA from the outside. It seems unlikely that either of them will force an election in the next few months. The reason is simple?Mulayam?s party has been on the backfoot politically in Uttar Pradesh because the Muslim community is unhappy about the recent killing of a Muslim police officer. This was preceded by riots in Faizabad and adjoining areas last year in which Muslim lives and property were targeted. Grapevine has it that Mulayam Singh Yadav wants some time to assuage the feelings of the minority community which forms a major support base for the Samajwadi Party. Mulayam is hoping to have the long pending Sachar Committee report on the state of the Muslim minorities to be adopted by Parliament as a palliative for the community.
Besides, with Narendra Modi virtually front-running himself as a possible Prime Minister candidate for the BJP, it will be very difficult for regional parties with Muslims a significant vote base to precipitate an earlier election. For it may be seen by the minorities as helping the BJP come back to power. This factor particularly plays a big role in states with sizeable minority population, such as Uttar Pradesh, Bihar, Andhra Pradesh and West Bengal.
It appears that even potential allies of the BJP do not want an earlier general election. For instance, Jayalalithaa?s government in Tamil Nadu has become prematurely unpopular for not being able to provide electricity for over 8 to 9 hours in the bulk of the state. Tamil Nadu has never faced such power shortages. Jayalalithaa has promised to fix the electricity problem by this year end. So, she would not want an election until that happens. Naveen Patnaik of the BJD wants the Lok Sabha and assembly election for Orissa to happen together next year in May as that would help the party do better in both segments.
Given all these factors, it seems unlikely that general elections get advanced to November this year, though the chances of that happening may seem to have increased after the recent withdrawal of support by the DMK.
From a macro-economic perspective, it may be more beneficial for India to have a general election next year as scheduled. By then, some of the current uncertainties dogging the economy may also subside somewhat. This will also help the new government, whichever combination, to avoid a fire-fighting exercise immediately after taking charge.
mk.venu@expressindia.com