Thursday, October 4, 2012

Recapturing the Reforms space…..Congress’s political strategy clear

The Congress is working overtime to prove its reforms credentials. Or should we say: re-prove them. After being hobbled down by a Leftist Mamata for far too long, the Congress seems to have found its space all over again. In doing so, the Congress is playing a shrewed political game – sensing an opportunity which few others have sensed. It has also managed to de-position the BJP.

Here’s how. The Congress’s traditional voter base has been the rural poor, the farmers and the Muslims (in most states, except in UP and Bihar). In some of the states, it has squandered its grip to offshoots – like the TMC in Bengal, the NCP in Maharashtra and more recently, the Jagan led party in AP. All these parties are essentially the Congress itself; but having a separate identity helps their leaders secure a more prime place in governance and in politics. The big point however is that the Congress’s politics is about rural areas. Hence the MNREGA; the loan waiver; the repeated increases in Minimum Support Price; the Food Security Bill; the lavish Land Acquisition Bill etc etc. While every party is pro-poor and pro-rural folks, the Congress is the biggest claimant to this class of voters.

To this, the Congress added in 2009 the fast growing segment of urban middle class, usually a BJP strong hold. The Congress has added this segment on the back of a few gaping holes in the BJP armory. Traditionally, the biggest bugbear of the urban middle class – its complaint with the BJP – has been the “Hindutva” agenda of the party. Most urbanites have evolved and moved away from petty religious issues and believe in communal harmony. The focus has shifted towards economic progress. The BJP’s fierce and divisive politics of Ayodhya still rankles them. But the more orthodox of the middle classes have lent support to the BJP on this score.

The other gaping hole has been the BJP’s apparent lack of progressive economic thinking. The BJP first showed that during the 2008 Indo-US nuclear deal debate and vote in Parliament. Most urbanites anyday prefer anything “US” to anything “Russian” or indeed today anything “Swadeshi”. The BJP has completely misread this sentiment, preferring to fork a US-phobia to urbanites. The urban voters wanted the nuclear deal, just like they want the Jaitapur and Kudankulam power plants. But the BJP voted against the deal and squandered an otherwise strong position they had before the 2009 elections. The BJP’s long term ally, the Shiv Sena, is now creating a shindig around Jaitapur.

The BJP has made a huge mistake in opposing reforms. Whatever the party may do to explain that every reform is not related to FDI, in the common person’s space, it is. If more FDI enters the country, the country progresses faster. They get more jobs. There are more “foreign-like” shops that open. Our cities look more global. There is more pride in the people etc etc. Honestly, no one in the urban centers agrees with the BJP on the “40 million jobs will be lost” theory the BJP is propounding. They have seen more than 2000 Indian large formats open and they have only seen more jobs being created.

Then there is the larger issue of opposing all reforms. The BJP opposes everything. All this doesn’t go unnoticed. The middle class is savvy enough to demand alternate solutions rather than just questions being asked.

Net Net, the Congress has rightly regained its reforms imagery. If reforms was not the Congress’s agenda, why would it want to have Manmohan Singh as the PM? It could have had any pliant politician to hold the job until Rahul became ready. Here’s the other truth about the middle class. They love Manmohan Singh, no matter what attempts the BJP may make in calling him a puppet of Sonia. There is a strong belief that MMS is clean and in today’s politics – when the BJP’s party President Gadkari is again and again getting embroiled in corruption controversies – even that is good enough.

The Congress also realizes how the mood has swung around since it started announcing the reforms. As I write this post, the Sensex is kissing 19K and the Re has bounced back to the 51 levels. There is a visible relief in the corporate sector that the economy will start to roll again. Investments are expected to start soon too and with that job growth. In today’s India, at least as far as Lok Sabha elections go, economics has started to matter significantly. By positioning itself on the reforms bandwagon, the Congress is carving out a completely isolated and unique position for itself. Equally importantly, it has completely depositioned the BJP, which suddenly appears to have nothing to offer as far as growth and reforms are concerned. It has also managed to create a rift within the party – with business minded states like Gujarat being forced to tow the party line, in spite of their genetic bias towards progress.

The real truth is that the Congress has managed to position itself as the sole supporter of reforms. In a country that aspires, first and foremost, for rapid growth and well paying jobs, that’s a solid advantage. The BJP may stick to its head in the sand attitude for now; but sooner rather than later, it will have to change tracks.

1 comment:


    India. Reforms. Really?

    Much has been made of the “burst of reforms” unleashed by Finance Minister Chidambaram in recent weeks. The stock market has rallied and animal spirits it seems are back. Everybody’s babbling about how the UPA, after eight years in power, has found religion ie “reforms”.

    The market is now at 21 times price to earnings (trailing twelve month free float adjusted as per the National Stock Exchange). Once more the mood swings violently. More interestingly the India VIX , the fear index is at 3 year lows of 15. This is usually an indicator of complacency, and historically such lows have signified a massive sell off. The combination of the stretched price to earnings and the VIX means the market is ripe for a big sell off. My two bit as an Ivy educated fund manager in Bombay who has worked internationally on some of the world’s major structural adjustment and economic reform programs.

    In reality, the reforms amount to bureaucratic tinkerings with percentages – of a sort that only tax mavens and accountants can comprehend. Witholding taxes go down by a percentage point or two. Now an attempt's been made to increase the percentages foreigners can hold in insurance and pensions. (This last will never pass through Parliament given the unanimous opposition to it). Blah Blah Blah.

    The government had no choice but to unleash this wave of tinkering and call it “reform”. It is trying to keep the capital markets buoyant because it needs to sell or “chipkao” (i.e. stick, as we say in the business) close to Rs 40,000 crores worth of equity. This with spectrum auctions, hopefully plug the budget deficit a little by March. More crucially, it will also free up resources for massive election giveaways in next March’s budget. This is especially needed if the Food Security Bill –Madame Sonia’s chosen strategy for reelection – is to be passed.

    Real reforms for India will not happen for a long time. These include financial sector reform, and privatization of the banking system.

    Everybody’s babbling in the media about how crucial the February budget is going to be for the UPA because it will be packed with big ticket sops like the Food Security Bill. Remember game theory however. It is crucial to take your opponent’s reaction into account. The Opposition also knows that the budget will be crucial to the UPA’s reelection chances ! Why then will they allow the UPA to present the budget at all. Especially when they have the numbers and the government is already on life support and in a minority. !!!

    The government therefore, will, in all likelihood, fall in November-December, during the winter session of Parliament. Elections will take place in March-April as India needs the school system for a general election. This will allow the Opposition the chance to deny the government’s attempt to pass a budget full of sops and giveaways. The February budget will consequently be a vote on account. This scenario will suit all parties except the Congress and hence it will happen.

    Is the market discounting the possibility that in a few weeks, all these guys PC etc. etc. will be gone ? Looking at the way its going up, I think not.

    The logical conclusion also is that this is the high point of the markets move this year. India has gone from having the most incompetent FM (Pranab) to the most cunning FM (Chidambaram). The later is deliberately doing all he can to talk up markets to implement his plan. There is little need to oblige him and his plans of using the stock market as a financing vehicle, by buying high and losing one’s hard earned capital.