Thursday, March 27, 2014

Make or break elections in India

As the election nears, the political discourse has become shrill, divisive, rhetorical but seldom, if at all, insightful. From the economy and markets perspective, there was never a turning point as pronounced as this. 

The market favours Narendra Modi, BJP’s prime ministerial candidate. However, the electoral numbers present a challenge. The BJP is strong in North and West, marginal in East and almost absent in the South. As per recent opinion polls, North and West are firmly backing BJP. The East will be crucial test for BJP’s party machinery while South will depend upon alliances. 

At the same time, opponents are getting their act together. Aam Admi Party despite its ludicrous politics, enjoys continued support amongst its followers. If not anything AAP may limit BJP’s seat share below the 180 mark. Congress may gain from its many populist gifts to rural India in the past decade. Congress is a shrewd tactician at election games and can still ratchet up 150+ seats simply because of it truly national presence. The third front is realigning itself to increase the bargaining power at the time of government formation. The lack of coherent leadership within third front makes it a target for alliances and partnerships, legitimate or otherwise. 

A rational result hints at BJP winning 190-200 seats. This number was adequate to run stable coalitions in the past. However, Modi’s polarized image may present a problem and a lot will depend on tally of other parties. If Congress wins 150+ seats, there is a reasonable possibility that BJP may be sitting in opposition even after winning 180 seats. BJP needs at least 230-240 seats to decisively win the mandate.

From market’s perspective, there are three likely outcomes of this national election – a coalition led by strong BJP, a coalition led by weak BJP and a indecisive-mandate.

The first case will allow Modi to implement a model of economic reform he has articulated. It is a big challenge as there is little time to address the breadth of issues facing the economy. In case of a weak BJP-led coalition, things will become uncertain. We must realize that the national mood is pro-Modi and not exactly pro-BJP, and BJP continues to be riddled with its old problems even today. In a weak coalition Modi-detractors may not allow a broad-based economic reform. This situation will test the political ability of Modi to maintain stability, something Vajpayee achieved with help of Brijesh Mishra.

However, in case the electorate throws up an indecivisive-mandate, we are positively doomed. Our present predicament leaves less room for experimentation or populist adventurism. It will result in a lost decade and some of the damage caused may leave deep scars. A lack of coherent policy may make low growth endemic and entrench our structural problems.

There is hardly any margin of error this time but then Indian voter has demonstrated surprising political maturity in the past. So let us hope for sanity.