2014--Perspective on Prospective Economy

By Prabhakar Timble
01 April 2014 06:23 IST

Financial market analysts attribute the recent spurt in foreign institutional investor inflows to the expectations of a new and stable government at the Centre. With the present slump in growth and the paralysis in decisions under UPA-II, the topmost priority of any new combination of political parties would be to change the perceptions of investors, business and industry. Though the different pre-poll surveys arrive at different quantification of seats for political parties, the common points of general agreement provide clarity that the future government would be a new coalition of political parties. A change in the government is a cent per cent prospect.

The predictions on the direction and route of economic initiatives would depend on the final coalition of parties. It appears that the Congress party will not be in a position to take the lead to form the next government. Assuming the BJP to reach around 200 seats, the chances of Narendra Modi of becoming the Prime Minister could be placed at 6.5 on a scale of 0--10. The chances could plummet to zero if the BJP slides in the range of 150-165 seats. BJP nearing the 225 mark on its own would make the position of Narendra Modi unassailable.

However, it looks that the regional parties would hold the key to the formation of government. The present and former Chief Ministers of U.P., T.N., Orissa, Bihar and West Bengal would hold more influence in the choice of the Prime Minister as opposed to the national parties. It is this formation which will determine the direction of economic policy, pace of reforms and investor expectations.

Basic economic governance realities

Industry circles would rave in optimism if BJP on its own reaches the half-way mark. This would rocket investor expectations hoping a strong, centralized and authoritative leadership which can quash all opposition. This appears to be impossibility whoever becomes the Prime Minister. It is not only unfeasible but also ridiculous to govern India centralized.  The national agenda of any government has to be the sum total of regional aspirations. India First should not be read as Centre First. The Union government should call the shots in defence, taxation, internal security, foreign policy and external trade. In all other matters, it would be the Chief Ministers that would dominate in deciding economic initiatives rather than the Prime Minister.

Narendra Modi cannot change this reality. Gujarat experienced good economic growth under Modi but the model cannot be installed at the federal level. What is spoken as Gujarat model is a governance-administrative strategy for facilitating investment and growth. This is possible in a region with a strong Chief Minister enjoying muscular majority. Narendra Modi empowered selected bureaucrats, initiated single-window clearances and bull-dozed opposition to move ahead with chalked out priorities. This model cannot work once in the shoes of the Prime Minister working with coalitions and different political equations in the States.

 

Coalitions will break if the Prime Minister is arrogant and humiliates other leaders. Every new election speech of Narendra Modi at every new location is filled with self-praise and multiplies in geometric progression the personal assassination of other leaders. It would be difficult for Modi to change this verbal style and body language being his natural gift which is well composted. This compost is not conducive for intra-party flowers to blossom and inter-party branches to spread.  

There are reports that a Modi-led BJP government would restore the external value of the rupee to Rs. 45 a dollar. This cannot happen as the external value of any currency is determined by trade balances and currency demands. Further, an appreciated rupee of this level is definitely not good for economic growth and development.

Any change in the government would not show material improvements in transparency and honesty levels. Gujarat is definitely not a model for these variables. AAP generates hope in these areas but without specifics and only populism, it would be an operational disaster. That India has to live with crony capitalism and corruption is a reality. Looking at the quality and volume of the BJP campaign anyone can read that the future likely government is knee deep in “pre-paid” corruption. The barter has begun well in advance of taking the reins of government.

Manifestoes and expectations

With the daily ‘parliament’ on TV channels, expectations from political parties need not wait for their manifestoes. In the age of coalition politics, manifestoes of a single political party would matter less in the post-election panorama. AAP though uniting corporate executives, entrepreneurs and professionals is still considered by the business group as a party which would harm the economic agenda if it comes within the range of influencing government formation. The Congress party believes more in creating entitlements in respect of food, health, employment, education and information. Apart from this, there is no difference in the economic agenda of the two major national parties i.e. the BJP and the Congress.

A change in government would not result in any major policy shifts. The process of liberalization would continue at enhanced degrees. There would be no blocks to foreign capital and investment. The Congress manifesto underscores “zero aversion” to foreign investment. The NDA reservation is only on multi-brand retail. Otherwise, both are on same standing in respect of reforms and liberal approach to corporate houses. A Modi-led NDA would fast track reforms including GST. Increased defence spending and hard bargaining with WTO could be expected. BJP led government minus Modi will have to remain content with moderate reforms. A similar view would be seen if the working coalition emerges with the support of either Mamata or AIADMK.  If the BJP is out from government formation, which is most unlikely, it would be the JD(U) and SP or BSP which would be the key negotiators with UPA.

Common Challenge

These tests stand the same for any coalition to emerge at the Centre. No PM face can make a difference to this challenge. The challenge is to find the golden mean and harmony between environment and development. The government has also to face up to the issue of forests and rights of tribals. Land acquisition and land availability for developmental purposes is a critical issue confronting the central and state governments. These issues have stalled projects, blocked investments and unnerved investors. On the fiscal side, it is the challenge of stabilization involving cuts in fuel subsidies, fertilizers and pruning centrally sponsored schemes and programmes.

Economic policies of the BJP and the Congress converge. Hence, a change in the major political partner at the Centre is a no-risk proposition for investors and business in the immediate future. The sharp differences of both are on how the two political parties have perceptions of history, India’s past, India’s constitution and society of the future. This distinction explains their divergence of thinking in social, cultural and educational fields. It is this dissimilarity that makes all the difference for the idea called India because development is not just smart economic growth.+

(Based on the talk delivered under the auspices of British Business Group, Goa.) 

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Prabhakar Timble

Mr Prabhakar Timble is an educationist and a legal expert. He has served several educational institutions, especially as the Principal of Government College at Quepem, Kare College of Law in Madgao as well as couple of Management Institutes. He was also the State Election Commissioner of Goa.

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