Markets Fear Setback To Reforms

Updated: Apr 29 2004, 05:30am hrs
The markets suffered a bout of moody blues when exit polls signalled the prospect of a hung Parliament. Fractured verdicts have been a hardy staple of political India since the 1990s but the last five years have been different as past uncertainties on the economic front receded in favour of relative stability and bold advances on reforms. All of this can be reversed if there is an alternative to the National Democratic Alliance.

True, markets abhor uncertainty of all forms, but what they see lying ahead spooks the daylights out of them. The alternative to the NDA if it falls drastically short of the numbers needed to return to power is most probably a Congress-led formation supported by the Left and the two Yadavs, Mulayam and Laloo. A closer look at what these parties promise in their manifestoes doesnt offer much hope on their economic line and length.

The Congress has belatedly sought to re-occupy the reformist space but is bound to dilute its agenda to keep its allies on board. Like the Left, it too yearns for the good old days when the State occupied the commanding heights of the economy. Mulayam Singh Yadav wants to rename India as Bharat and falls back on Lohiaite chauvinism and Mandalite reservationism to win votes as The Financial Express noted in an editorial on April 12, 2004.

As for the other Yadav, the less said the better. Thankfully, Laloo has only a single point agenda of making money, whichever way he can, noted PN Vijay in his column for The Financial Express (April 22). With this motley lot constituting a probable alternative to the NDA, is it any wonder that the markets reacted the way they did This formation will rollback every single gain on the economic front in recent years with determination.

Gazing at the smaller picture will indicate why this is so. If the exit polls turn out to be exact polls, to borrow an expression of N Chandrababu Naidu, the biggest political upset south of the Vindhyas will be in Andhra Pradesh. This is indeed bad news for Naidu, an ardent reformer and self-styled CEO, who pitchforked his state onto the global map during the last nine years. Why do the exit polls signal an end to his rule

After all, there were many good things that he did. Foremost among them was to leverage the states advantage in information technology and biotechnology. The transition of Hyderabad to Cyberabad symbolised Naidus vision which he sought to bring to fruition. He made determined efforts to introduce e-governance and assured domestic and foreign investors that the buck literally stopped with him as the CEO of Andhra Pradesh.

Naidus boldest reform of them all was in the power sector where he went way beyond the pioneering moves of Orissa. Naturally, he became the World Banks poster boy of reform. But this well-intentioned effort gradually began to unravel. Among the various factors responsible for this state of affairs was his inability to get the agricultural sector to pay even an effective cost of 18 paise for power which cost an average of Rs 3 plus to supply.

With industry already being charged the maximum, the brunt of adjustment fell on the hapless consumers. This writer spent an eventful six-month period in Hyderabad in 2000 when there was a statewide backlash against the tariff hike for domestic consumers. With the states finances already awash in red, Naidus room for maneouvre in providing higher and higher subsidies to shield agriculturists from paying user charges was indeed limited.

If the exit signs are now flashing for Naidu, what is the alternative in store for Andhra Pradesh Just at a time when the state was getting its act together, the prospect is of a Congress-led government with support from the separatist Telangana Rashtriya Samithi. This is nothing short of a disaster as the Congress is totally bereft of ideas. With YS Rajashekhar Reddy promising free power, the Congress will undo Naidus power reforms.

To be sure, which farmer will balk at the idea of free power The Congress campaign on this platform naturally got a lot of support in the hinterland. The Indian Express comprehensive coverage of the political mood along the national highways brought home this interesting fact. A prosperous cotton-growing middle farmer in Ponnari, Adilabad district, thus talks of supporting the Congress precisely because of its promise of free power.

But if the farmers do get free power, who will pay the cost of supplying it The Congress also wants to shield the consumer for two years! Something evidently has gotta give, but the party doesnt have a clue in this regard. Will it also allow Telangana to secede from Andhra Pradesh after it comes to power This is the sort of bankrupt alternative waiting in the wings if Naidu bites the dust at the hustings.

Back to the bigger picture, a Congress-led formation at the Centre will also reverse every single gain made on the reforms front. One of these is with respect to public sector undertakings. Arguably, the boldest reform of the NDA was in resorting to strategic sales of PSUs VSNL, Maruti Udyog Ltd to name a few in sharp contrast to the earlier practice of selling small amounts of PSU equity to balance the governments books.

All of this will grind to a halt as both the Congress and the Left consider PSUs as family jewels even when they are bleeding the exchequer. With their wishy-washy stance on not selling PSUs but only restructuring them, is it any wonder that PSU stocks suffered the most on Tuesday Clearly, fears were rife that the PSU disinvestment process would suffer given the prospect of a fractured verdict signalled by the poll pundits.

At a time when the next phase of reforms such as flexible labour laws are imperative, a Congress-led formation has only populism to offer with its prattle of reservation of jobs even in the private sector. One of the Yadavs even wants reservations for Muslims. That such a reversal of reforms is in prospect with a hung verdict is precisely the nightmare of Dalal Street.