Vivek Kaul
The index of industrial production (IIP), a measure of the industrial activity in the country, grew by a meagre 2% in April 2013, in comparison to the same period during 2012. The index was expected to grow by around 2.4% (source: India: Weak growth and sticky retail inflation. Sonal Varma and Aman Mohunta, Nomura). In the month of March 2013, the index had grown by 3.4%.
This slowdown of industrial growth reflected in the low IIP number is expected to lead to call for a cut in the repo rate by the Reserve Bank of India(RBI). Everyone from the Finance Minister to business lobbies to business leaders are expected to join the chorus. The logic is that at lower interest rates people will borrow and spend more, so will businesses. This will create demand and thus help revive overall industrial activity and in turn the overall economy. Repo rate is the interest rate at which the RBI lends to banks.
Naina Lal Kidwai, President of Federation of Indian Chamber of Commerce and Industry, told The Economic Times “Consumer durables segment registered one of its highest falls since 2009 and calls for moderation in interest rates to stimulate demand.”
Similar statements were made by Presidents of CII and ASSOCHAM, the other two industry bodies.
But there are several reasons why a cut in interest rate by the RBI may not work.
During the last one year the banks have lent around Rs 83 out of every Rs 100 that they have borrowed. Ideally they should not be lending more than Rs 70 out of every Rs 100 that they borrow. This is because banks need to maintain a cash reserve ratio of 4% i.e. for every Rs 100 that they raise as a deposit, they need to deposit Rs 4 with the RBI.
Banks also need to maintain a statutory liquidity ratio of 23%. For every Rs 100 that banks raise as a deposit, Rs 23 needs to be compulsorily invested in government securities. Government securities are essentially bonds issued by the central and the state governments to borrow money to make up for the difference between what they earn and what they spend.
What this means is that for every Rs 100 that banks raises as a deposit, Rs 27 gets taken out of the equation straight away (Rs 23 as SLR and Rs 4 as CRR). That leaves around Rs 73 to lend (Rs 100 – Rs 27). So in a healthy situation a bank shouldn’t be lending more than Rs 70 out of every Rs 100 that it raises as a deposit.
But as we see above, banks have lent Rs 83 out of every Rs 100 that they have raised as a deposit during the last one year. This means they haven’t been able to raise deposits as fast as they gone around lending money. Hence, interest rates on deposits cannot be brought down because banks need to correct this mismatch between deposits and loans, by raising deposits at a faster rate.
So even if the RBI cuts the repo rate, the question is will the banks be able to match that cut? As explained above that seems unlikely.
But for the sake of argument lets assume that the RBI cuts the repo rate and the finance ministry is at least able to push the public sector banks to cut interest rates. And if public sector banks cut interest rates on loans, chances are even the private sector banks may have to match them to remain competitive.
This may or may not happen, and at the cost of reiterating let me state that I am only trying to make a point here. Lets consider the car industry, which is a very good representation of overall industrial activity. As TN Ninan wrote in a column in Business Standard in January 2013, “The car industry is a key economic marker, because of its unmatched backward linkages – to component manufacturers, tyre companies, steel producers, battery makers, glass manufacturers, paint companies, and so on – and forward linkages to energy demand, sales and servicing outlets, et al.”
As is well known by now car sales have been slowing down over the last seven months. In the month of May 2013, car sales were down by 12.3%. When car sales are down it obviously means that car companies will report lower sales and profits, unless they manage to cut costs dramatically, which is not possible beyond a point. What it also means is that car companies will not produce as many cars as they can given their production capacity. As has been reported on Firstpost, Maruti, India’s largest car maker, did not make any cars on June 7, 2013. This for a company which makes 5000 cars every day.
When a car-maker does not make cars it obviously slows down industrial activity. It also slows down the production of every company which provides inputs to a car company. This ranges everyone from steel companies to paint companies to tyre companies to battery manufacturers to steering manufacturers and so on. And this in turn slows-down the overall industrial activity.
To revive industrial activity, hence it is important that more cars are sold. And more cars will be sold when loans are available at low interest rates, goes the logic. But lets try and understand why this logic doesn’t work hold.
Lets consider the case of an individual who borrows Rs 4 lakh to buy a car at an interest rate of 12% repayable over a period of 7 years. The equated monthly instalment for this works out to Rs 7061. Lets say the bank is able to cut the interest rate by 0.5% to 11.5%. In this case the EMI works out to Rs 6955, or Rs 106 lower.
Even if the bank cuts interest rates by 1%, the EMI goes down by Rs 212 only.
If we consider a lower repayment period of 5 years, an interest rate cut of 0.5% leads to an EMI cut of Rs 100. An interest rate cut of 1% leads to an EMI cut of Rs 200.
So the bottomline is that an individual will not go and buy a car just because the EMI has come down by Rs 100 or Rs 200. There is something else at work here. And the logic that people are not buying cars because interest rates are high just doesn’t hold.
As RC Bhargava, a car industry veteran and the Chairman of Maruti Suzuki India told Business Standard in a recent interview “In India, over 70 per cent of car purchases are financed by banks. An interest rate reduction of, say, one percentage point doesn’t change a person’s decision of buying or not buying a car…With the uncertainties prevalent today, a consumer does not know what his job would be like after a year – whether or not he will have an incremental income, or even a job.”
So people are not buying cars simply because they are insecure and are not sure whether they will be able to hold on to their jobs in order continue paying their EMIs. And given that they wan’t to avoid the risk of defaulting on their EMIs. Hence, cutting interest rates are in no way going to help kick-start car sales. Also, if the logic of cutting interest rates leading to people buying cars does not hold, there is no question of it working for consumer durables as well, Kidwai’s statemnt notwithstanding.
Real estate is another sector which has strong linkages with other sectors like steel and cement. A cut in interest rates will bring down EMIs significantly on home loans. But even with lower EMIs people are unlikely to buy homes. This is because the cost of homes especially in cities has gone up big time. And even the lower EMIs will be very high for most people. Hence the sector continues to be in a dump and is likely to continue to be in one.
Given this, all the talk about lower interest rates improving the industrial activity and in turn economic growth, is at best just talk, and needs to be taken with a pinch of salt.
The article originally appeared on www.firstpost.com on June 13, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Month: June 2013
Is China getting ready for the next big financial crisis?
Vivek Kaul
A famous Central Intelligence Agency (CIA) paper on China is titled “The Art of China Watching”. In this paper the author Gail Solin concedes that “The art of China-watching is imprecise at best…The explanation, or blame, for this often frustratingly lies mainly with the way the Chinese conduct their affairs. To say the Chinese have a penchant for secrecy is almost an understatement.”
Edward Chancellor and Mike Monnelly of the global investment management firm GMO writing in a white paper titled Feeding the Dragon: Why China’s Credit System Looks Vulnerablesuggest that the CIA paper was written sometime in the 1970s.
When it comes to those from the outside watching the Chinese financial system, things haven’t changed nearly four decades later. China watching is still imprecise at best. Or as Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong recently told Bloomberg “It’s a big black box, and it’s quite scary.”
And a few things coming out of the black box now seem to suggest that things are not as hunky dory as they are being made out to be. The loans given by banks and other financial institutions have reached very high levels. As Chancellor and Monnelly point out in their research paper “Between 2007 and 2012, the ratio of credit(i.e. loans) to GDP climbed to more than 190%, an increase of 60 percentage points. China’s recent expansion of credit relative to GDP is considerably larger than the credit booms experienced by either Japan in the late 1980s or the United States in the years before the Lehman bust.” As of the end of 2012, the total lending by banks and other financial institutions as a proportion of the GDP ratio stood at 198%.
So China has a debt problem, given that the total loans given by its banks and other financial institutions have risen at a very rapid rate. “There is just no way to grow out of a debt problem when credit is already twice as large as GDP and growing nearly twice as fast,” Charlene Chu Senior Director in the Financial Institutions Group at Fitch Ratings based out of Beijing, told Bloomberg.
What is interesting is that the loan boom in China has been faster than many other countries which have faced severe banking and financial crises in the past. As the Bloomberg story points out “A jump in the ratio of credit to GDP preceded banking crises in Japan, where the measure surged 45 percentage points from 1985 to 1990, and South Korea, where it gained 47 percentage points from 1994 to 1998, Fitch said in July 2011. In China, it has increased 73 percentage points in four years, according to Fitch’s estimates.”
And this loan growth continues unabated. In the period January-March 2013 total loans grew by 20% in comparison to the same period last year. There are two main problems that arise with excessive loan growth.
As Wei Yao of Societe Generale writes in a report titled China’s missing money and the Minsky moment “a fast rising debt load of an economy suggests either deteriorating growth efficiency or high and rising debt service cost, or in many cases both. There is clear evidence that China is suffering from both of these.”
What this means is that China now needs more and more debt to create the same unit of growth. Meanwhile the debt service ratio keeps growing. Debt service ratio is essentially the sum of interest to be paid on all the outstanding loans along with the maturing loans that need to be repaid expressed as a percentage of GDP. Wei Yao estimates that China has “a shockingly high debt service ratio of 29.9% of GDP, of which 11.1% goes to interest payment and the rest principal.”
“At such a level, no wonder that credit growth is accelerating without contributing much to real growth!,” she writes.
A lot of the excessive loan growth in China has gone into buying and building property, where no one lives. “Miles upon miles of half-completed apartment blocks encircle many cities across the country. Official data suggest that the value of the unfinished housing stock is equivalent to 20% of GDP and rising..Developments in the infamous “ghost city” of Ordos, in Inner Mongolia, reveal the vulnerability of China’s credit system to an overblown housing market. The Kangbashi district of Ordos is a totem for China’s property excesses. Kangbashi has enough apartments to shelter a million persons, roughly four times its current population,” write the GMO authors.
This basically means that builders who built these homes are not in a position to repay the loans they had taken on, given that the homes are not selling and have been more or less abandoned. This excessive building of homes was driven primarily by demand from speculators. The government has taken various steps to kill ‘speculation’ from time to time but hasn’t done enough and it keeps coming back.
Andy Xie, a former Morgan Stanley analyst, who closely tracks China made a fairly interesting point in a column he wrote in late March 2013. As he wrote “The government has introduced tightening measures against property speculation from time to time. These measures have never been serious enough to stamp out speculation. They merely slowed and extended it. The ineffectiveness of the measures keeps up the dream that prices could surge when the government either loosens up or is overwhelmed. That dream keeps speculators in the game. The latest measure – a 20 percent capital gains tax, yet to be fleshed out in detail – is the latest example. In the short term it sparked a frenzy because speculators are rushing to buy before the tax comes into effect.”
This has led to a situation where banks and other financial institutions have ended with a lot of real estate as a collateral against the loans they have given out. “It’s probably fair to say that at least one-third of bank credit exposures are real estate related,” write Chancellor and Monnelly.
Banks have also given a huge amount of loans to local governments and taken on land as a collateral. The trouble is that a lot of this land has been dubiously overvalued by local governments to take on higher amount of loans. “The quality of the collateral held by the banks against their loans has been questioned. Collateral often comes in the form of land, which in some cases has been valued by local officials at a premium to actual market values…Loudi, a little-known city in Hunan province, serves as the poster child for local government funding vehicles excesses. According to Bloomberg, Loudi’s local government borrowed RMB 1.2 billion to finance the construction of a 30,000-seat faux Olympic stadium, gymnasium, and swimming complex. The land collateral for Loudi’s loan was valued at around four times the value of nearby plots zoned for commercial use,” Chancellor and Monnelly point out. So if the banks try to sell the land they have as collateral in case of defaults, they are not going to recover a large portion of the loans they have made.
Also, a lot of local governments have taken on a large amount of loans to spend on trophy projects which are not going to generate returns any time soon. One such project is the famous maglev (magnetic levitation) train that goes from Longyan Road in Shanghai to Pudong International Airport in eight minutes.
Ruchir Sharma, head of Emerging Markets and Global Macro at Morgan Stanley Investment Management, describes his experience of taking the train in Breakout Nations. While the experience was fantastic, there were hardly any passengers around. He points out that locals say that the train is usually only half full because it starts in the middle of nowhere and the ticket is very expensively priced.
Such projects are not expected to generate returns anytime soon, making the repayment of loans even more difficult. As Chu of Fitch told Bloomberg “Companies are taking on a lot of debt but not getting comparable returns… If they’re not getting sufficient returns, at some point they will have problems repaying the debt.”
So the situation is tight but this hasn’t started reflecting in loans defaults as yet. The formal banking system has a non performing loan ratio of around 1%. There are several reasons why this ratio is not higher. One simple reason is that the banks have been allowed to roll-over loans, in case the local government bodies which have taken on the loans are not able to pay up. This basically means that when a loan falls due and the borrower needs to repay it, the bank does not demand repayment of the loan and continues to accept interest on it from the borrower.
What has also happened is that banks are selling bonds bundled into wealth management products to their clients. These bonds are supposed to be raising money to finance infrastructure projects. But that is really not the case. As the GMO authors write “Caixin (a Beijing based media group) quotes a source at a major bank claiming that many bonds, which purported to finance new infrastructure projects, were actually being used to pay off old bank debts. While this has allowed banks to reduce their reported exposure to local governments, it is possible they will have to make good any future losses suffered by investors on future bond defaults.” So basically future bad loans of banks have been passed onto bond investors.
Of course such things cannot go for eternity. As Wei Hao of Societe Generale puts it “a number of economies had similar or moderately lower debt service ratios (DSRs) when they were headed towards serious financial and economic crises. Examples include Finland (early 1990s), Korea (1997), the UK (2009), and the US (2009). This is one more data point in China that evokes the troubling thought of a hard landing.”
But not everyone is willing to buy this argument. Those who don’t buy feel that China is in the midst of a ‘credit bubble’ like to point out that most of the outstanding Chinese debt is domestic. And given that there can be no crisis. They just need to look at Japan. Domestic savings fuelled a stock market and real estate bubble in the late 1980s. The bubble started to burst in 1989, and the Japanese economy has never recovered since then.
The other point that China supporters like to point out is that China has a very low government debt to GDP ratio. As Chancellor and Monnelly point out “Many commentators also take comfort from the fact that China’s public debt (another term of government debt) is less than 30% of GDP. The trouble is that the official numbers are misleading…In order to get a proper picture of China’s sovereign liabilities we must add back the loans to local government infrastructure projects, policy bank debt (issued by the likes of the China Development Bank), borrowings by the asset management companies (which acquire non-performing loans from banks and others), and debt issued by the Ministry of Railways to fund the roll-out of the expensive high-speed rail network.” After this is done, China’s government debt to GDP ratio comes close to 90%, which is not small by any stretch of imagination.
So while there might be many out there who would like to believe that all is well in China, the evidence is clearly to the contrary. Chu of Fitch put it best when she told Bloomberg “You just don’t see that magnitude of increase in the ratio of credit to GDP…It’s usually one of the most reliable predictors for a financial crisis.”
The article originally appeared on www.firstpost.com on June 11, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Why Advani’s resignation is the ‘black swan’ that can hurt the BJP
Vivek Kaul
All swans are white.
Or so went the wisdom till the world discovered Australia.
Australia had black swans.
This was the basis of Nassim Nicholas Taleb’s black swan theory. The theory uses the black swan metaphor to explain the negative consequences of hard to predict rare events.
Nassim Nicholas Taleb and Mark Blyth explain the concept in a research paper titled The Black Swan of Cairo. Black swans are essentially large scale events that lie far from the statistical norm and are largely unpredictable to a given set of observers. So basically these events have a very low chance of happening and hence are rarely predictable in advance.
“Such environments eventually experience massive blowups, catching everyone of-guard and undoing years of stability or, in some cases, ending up far worse than they were in their initial volatile state,” write the authors.
Lal Krishna Advani’s resignation from all official posts that he held within the Bhartiya Janata Party(BJP) is a similar black swan event. It came out of the blue and has caught the party totally off guard. None of the political commentators who appear on television almost every day discussing the way this country is headed, predicted it. And like black swan events do, it has already started to have negative after effects.
As soon as the news of Advani’s resignation broke out one stream of thought that was put forward by supporters of Narendra Modi(particularly those on Facebook and Twitter) and other analysts was that Advani’s days were up and he should retire gracefully. Some even went to the extent of saying that he should have already retired gracefully and let the younger generation take over. It was time for the Bhishma Pitamah to lie down on the bed of arrows that he had made for himself, said one political commentator.
Whether Advani should retire, or should have already retired, is a matter of conjecture. But the fact is that he has not and still wants to be part of the political set-up. And that is the important point on which any discussion should concentrate on. Keeping that in mind, what are the negative repercussions that it could have for the BJP in general and Narendra Modi’s efforts in becoming the Prime Minister of India, in particular?
The Rashtriya Swayemsevak Sangh (RSS), the ideological mentor of the BJP, seems to be backing Modi in this fight. So that’s one positive going for Modi.
But there are other issues at play here. Even Modi, with all his charisma and political guile, cannot ensure a majority for the BJP in the next Lok Sabha elections on its own (neither can any other leader for his or her party). So alliances (pre-poll and post-poll) are the only way to form a government.
Advani’s resignation seems to be pulling apart what remains of the National Democratic Alliance (NDA). Janata Dal (United) an important member of the alliance is already talking about leaving it. As Sharad Yadav, the convener of the NDA, and a member of Janata Dal (United) said after Advani’s resignation “It is sad … It is not good for NDA’s health.” KC Tyagi, another Janata Dal(United) leader was a little more direct: “It is tough for us to remain a part of the NDA now that the BJP’s tallest leader is gone.”
If the alliance between BJP and Janata Dal (United) breaks down, at least 30 seats could be at stake in the next Lok Sabha for the NDA. Bihar elects 40 MPs to the Lok Sabha. While the development agenda of Nitish Kumar has held the alliance in good stead in Bihar, but it has also got its caste calculations right. Caste calculations are very important in a state as caste ridden as Bihar is. The upper castes typically tend to vote for the BJP and lower castes follow the Janata Dal (United).
If the parties were to fight elections on their own, the only person that is likely to gain is Lalu Prasad Yadav. This has happened in the past where Lalu Yadav (with his wife Rabri Devi as his front) has won elections despite being terribly unpopular because the opposition vote against him was not united.
BJP is largely insignificant in most of Eastern India. In Bihar and Jharkhand(where the party is largely on its own and has done well due to good penetration of the RSS in the tribal areas) together elect 54 Lok Sabha MPs, the party has a significant presence. If the arrangement between Janata Dal (United) and BJP were to breakdown it would mean another problem for the BJP. And this can’t augur well for Modi’s PM campaign. The party has an insignificant presence in large parts of the country (particularly the South and the East). Hence, it needs to do very well in the portions it has a significant presence.
What makes Bihar even more important is the fact that the BJP hasn’t done well in Uttar Pradesh in the recent past. In the current Lok Sabha the party has 10 MPs from the state which elects 80 MPs to the Lok Sabha.
Shiv Sena, BJP’s first alliance partner, is also thinking along the lines of Janata Dal (United). “(Sena president) Uddhav Thackeray has said that the contribution of Advani and former Prime Minister Atal Bihari Vajpayeein building the party was invaluable for both BJP and the NDA,” Sena spokesperson Sanjay Raut told PTI. “One cannot think of NDA or the BJP without Advani-ji,” he quoted Thackeray as saying.
Another important issue that crops up here is the way Advani has been treated by the current lot of BJP leaders backed by the RSS and driven almost into isolation. Treating a father figure in an unrespectful manner is not likely to go down well with sections of voters. In fact, sections of the pro-Congress media have already started harping on this fact. This can be another major headache for the BJP to deal with.
Also it is worth remembering that many BJP leaders over the years have been mentored by Advani (and this includes Modi as well). And this might lead to the party not being able to put forward a united front in the months to come and various leaders working at cross purposes. The BJP’s best performance came in the Lok Sabha elections of 1996, 1998 and 1999 (it won 161 seats in 1996 and 182 in both 1998 and 1998). This was the time when the party largely united under the leadership of Advani and Vajpayee.
MG Vaidya, a former spokesperson of the RSS, had a telling comment to make in this regard.
“It’s shocking that a leader of such a great stature has to quit. It is now evident that all is not well in BJP. Advani was probably perturbed over the inner crisis in BJP and therefore quit all positions,” said Vaidya. “Some other leaders and Advani’s followers too may tender resignations,” he added. This remains a huge risk for the party. The top leaders of the party bickering doesn’t send down a good signal to the cadres. As a senior BJP leader in Uttar Pradesh told the Times of India “The latest developments in the party are damaging. Bickering at the top would certainly demoralise the party cadre and on the other hand confuse the voter. It would further dent the party’s prospects in the state in the forthcoming Lok Sabha polls. Though the prime reason for the rift is elevation of Narendra Modi as party’s LS poll panel chief, there are other issues too that need to be addressed.” Also it is worth remembering that the old warhorse Advani still remains a better bet than Modi, if things get tight for the BJP, after the next Lok Sabha elections. He is likely to be acceptable to more parties as the leader of the NDA than Modi. Even Mulayam Singh Yadav, whose party Samajwadi Party depends a lot on the Muslim vote, has had nice things to say about Advani in the recent past
Given these reasons it is little too early to say that Advani’s resignation will have no impact on the BJP and Modi’s race to become PM.
The piece originally appeared on www.firstpost.com on June 11,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Advani versus Modi: The shishya who wanted to be guru
Vivek Kaul
The patriarch of the Bhartiya Janata Party, India’s main opposition party, used the nuclear option today.
Or as the old Hindi film dialogue goes “hum to doobenge sanam, par tumko bhi le doobenge.”
Lal Krishna Advani, a former film critic, who built the Bhartiya Janata Party (BJP) right from scratch, today quit from the three main fora of the party, the National Executive, the Parliamentary Board and the Election Committee.
In his resignation letter Advani said that for sometime he had been finding it difficult to reconcile with the current functioning of the party as well as the direction in which it was going. “I no longer have the feeling that this is the same idealistic party created by Dr (Shyama Prasad)Mookerji, Pandit Deendayalji (Sharma), Nanaji (Deshmukh) and (Atal Bihari) Vajpayeeji, whose sole concern was the country, and its people. Most leaders of ours are now concerned just with their personal agenda,” he write.
This came from a man under whose leadership the BJP went from two seats in the 1984 Lok Sabha election to 182 seats in the 1998 and 1999 Lok Sabha elections. Though when it came to leading the government Advani had to make way for the more acceptable and the softer face of the party, Atal Bihari Vajpayee.
Nearly 15 years later, in 2013, Advani thought that finally his time had come. His time to lead the country. Something he had always wanted to do, but never gotten around to. It was the last throw of the dice for him. A nice farewell into the sunset. But that was not to be.
He was upstaged by a man who was once very close to him. Someone who Advani taught a lot about politics. And someone whom he promoted as well as protected on different occasions. The man they call Narendra Damodardas Modi.
A son of a tea shop owner from Vadnagar in Gujarat, who rose first through the ranks of the Rashtriya Swayamsevak Sangh(RSS) and later the BJP, and grew so tall, that he finally managed to upstage his guru Advani as well. And this is something that Advani could not digest, which in turn led to the nuclear option, which now threatens to create huge problems for the BJP.
Narendra Modi started working for the RSS at a young age of six. He joined the RSS formally as a pracharak at the age of 21, in 1971. He was the second pracharak to be deputed by the RSS to BJP, its political affiliate. This happened sometime in 1987-88, during the days when Modi used to go around Ahemdabad in an ash coloured Bajaj Chetak.
This was also the time when Advani was looking to rebuild the BJP, after its disastrous performance in the 1984 Lok Sabha election, where the party had won just two seats. Among other things Advani decided to revive the post of the organising secretary in the state units of BJP. In the erstwhile Jana Sangh (BJP’s earlier avatar before it merged with other parties to form the Janata Party in 1977) the post was held by RSS pracharaks. Modi was made the organising secretary of the Gujarat unit of the BJP.
As Nilanjan Mukhopadhyay writes in Narendra Modi – The Man. The Times “From the beginning it was evident that Modi was Advani’s personal choice and he was keen to strengthen the unit in Gujarat because the state was identified as a potential citadel in the future.”
Advani also mentored Modi during his early days in politics. “It was Advani who mentored Modi when he virtually handpicked him into his team of state apparatchiks after recommendations from a few trusted peers in the late 1980s. Advani also gave Modi early lessons in how to convert the mosque-temple dispute into one of national identity and political blackmail,” writes Mukhopadhyay.
Modi would soon rise to national prominence when he would play a part in organising Advani’s famed rath yatra which yielded huge political dividends for the BJP. As Mukhopadhyay points out “Modi came into the national spotlight for the first time when he helped organise Advani’s Rath Yatra in September-October 1990…Modi coordinated the arrangements during the Gujarat leg and travelled up to Mumbai and it was a huge success in Gujarat – both in terms of seamless arrangements and public support.”
After the Rath Yatra he also helped organise Murli Manohar Joshi’s Ekta Yatra. Given the finesse with which he organised these yatras, for a while he was referred to as the poor man’s Pramod Mahajan. The late Pramod Mahajan was the man BJP turned to when it had organise big events.
In 1991, when it was getting risky for Advani to contest from the New Delhi Lok Sabha constituency given the low turn out that it had in elections, it was Modi who suggested that Advani move to the safe seat of Gandhinagar in Gujarat. A seat that Advani has represented since then except in 1996 when he had to resign due to the allegations of money laundering made against him in the hawala scam.
In the years to come the relationship between Modi and Advani went from strength to strength, with Modi emerging as the super Chief Minister of the first BJP government in Gujarat in the mid 1990s.
As Advani’s fondness for Modi grew, so did Modi’s stature within the BJP. “Throughout the 1990s and even after Modi became chief minister, Advani’s special fondness for Modi has been well known by both party insiders and observers… Advani had played a crucial role in the making of Modi as chief minister (of Gujarat) replacing Keshubhai Patel in October 2001.”
Within months of becoming the chief minister of Gujarat, Modi had a big problem on his hand. The bogey number S6 of the Sabarmati Express caught fire on February 27,2002, on the outskirts of the Godhra railway station. Fifty eight people died in the fire. The bogey had kar sevaks returning from a yagna n Ayodhya.
As Ramachandra Guha points out in India After Gandhi “On their way back home by train , these kar sevaks got into a fight with Muslim vendors at the Godhra railway station…Words of the altercation spread; young men from the Muslim neighbourhood outside the station joined in. The kar sevaks clambered back into the train, which started moving as stones were being thrown. However, the train stopped on the outskirts of the station, when a fire broke out in one of its coaches. Fifty eight people perished in the conflagration…Word that a group of kar sevaks had been burnt to death at Godhra quickly spread through Gujarat. A wave of retributory violence followed.”
After the riots there was immense pressure on Modi to resign. When prime minister Atal Bihari Vajpayee came to Gujarat after the riots, he suggested the same. As Mukhopadhyay writes “Vajpayee visited the state capital (of Gujarat) on 4 April 2002 and was apologetic – among other issues – for not paying a visit earlier. He called the events a blot on India and made no secret of his displeasure at the Modi government’s handling of the situation. The denouement came at the end of the day-long visit when he advised Modi to follow the Raj Dharma when the prime minister was specifically queried if he had any message for Modi.”
Modi continued to be the chief minister of Gujarat and that was primarily because of the blessings of Advani. Even though Vajpayee was the prime minister, the party was still run by Advani. As Mukhopadhyay points out “Once again in 2002, it was Advani who acted as a buffer between Modi and a section of the party which was baying for his blood as a symbolic atonement for the 2002 riots.”
Modi continued to live to fight another day and continued to rise within the BJP, applying the tricks of the trade that he had learnt from Advani.
On a visit to Pakistan in June 2005, tried to become the statesman that Vajpayee was by saying nice things about Mohammed Ali Jinnah. As Advani wrote in the Visitors’ Book at the Jinnah Mausoleum: “There are many people who leave an inerasable stamp on history…But there are very few who actually create history. Quaid-e-Azam Mohammed Ali Jinnah was one such rare individual.”
With this statement, Advani probably wanted to get rid of the tag of the original posterboy of Hindutva. But that did not work. And saying nice things about Jinnah did not go down well with RSS, which still believes in the idea of Akhand Bharat. Advani had to quit as the president of the BJP as a result of this faux pas.
The relations between Advani and Modi started turning sour after this. Advani obviously was trying to get rid of his tag of being the posterboy of Hindutva. But saying nice things about Jinnah went against the entire idea of Akhand Bharat which the RSS believes in. Around this time, Modi started to distance himself from his mentor. Advani had to pay for this statement and had to quit as the BJP party president in late 2005.
And this created space for Modi for a bigger role. As Mukhopadhyay writes “The original poster boy of Hindutva ceased to be and yielded space to the much younger Modi as the mascot of the aggressive Hindu face. At times it appeared that the guru-shishya relationship of yore had been replaced by intense rivalry.”
In the time that has followed the rivalry only grown. The final nail in the coffin came yesterday when the BJP decided to appoint Modi as the Chairman of the of the campaign committee of the BJP for the 2014 Lok Sabha election. This was essentially a signal that Modi was the tallest leader in the party and not Advani.
The shishya had finally arrived.
The son of a tea shop owner had risen through the ranks and been chosen the leader among the leaders of the BJP.
This was very unlike the Congress which chose it leader on June 19, 1970, the day Rahul Gandhi was born.
The only problem was that the guru still wanted to be the guru.
His last ambition still hadn’t been fulfilled.
And given this, how could the shishya takeover?
And if the shishya had decided to takeover, what would the guru do in the party anyway.
But for a man who has fought his fights as well as Advani has, how could he go down into the textbooks of history without one last fight.
The masterstroke by Advani has caught everybody off guard. The boxer in him is still alive. Advani ‘Rocky’ Balboa may not be as quick as once he was, but when he hits them, they hurt.
What will the shishya do now?
The article originally appeared on www.firstpost.com on June 10, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Why Narendra Modi is still far away from Delhi
Vivek Kaul
If it were to be left to the Indians who use Twitter and Facebook, Narendra Modi, the chief minister of Gujarat, would have already been appointed the Prime Minister of the country. But alas that cannot be the case.
Yesterday (June 9,2013), Modi was appointed the Chairman of the campaign committee of the Bharatiya Janata Party (BJP) for the 2014 Lok Sabha election. This appointment is being seen as the first step that India’s main opposition party has taken towards declaring its prime ministerial candidate for the forthcoming election.
The appointment has sent out a clear signal that Modi is the ‘leader’ among the leaders in the BJP. But even with that there is still a long distance between Narendra Modi and 7, Race Course Road (the residence of the Indian Prime Minister). As the old English saying goes “well begun is half done”. But its only half done and half still remains to be done.
First and foremost it is clear that the BJP does not have the wherewithal to get a majority on its own (Neither does the Congress. No party does in the current scheme of things). This has happened because the proportion of votes got by national parties has fallen over the years. In 1991, national parties among them got around 81% of the votes polled. By 2009, this number had fallen to less than 64%.
The party has a very small presence in large parts of Eastern India (West Bengal and beyond) and is practically non-existent in Southern India, except for Karnataka. The irony here is that across all states in India, the Rashtriya Swayemsevak Sangh(RSS), the parent body of the BJP, has the highest penetration in the state of Kerala (though UP has more shakhas). Despite that the BJP has never been able to win a Lok Sabha seat in the state, till date.
The party is not much of a force to reckon with in Andhra Pradesh, though it has won a few seats in the state in the past when it was in alliance with the Telgu Desam Party (TDP). The state sends 42 MPs to the Lok Sabha. The TDP now does not want to be seen aligning with the BJP because that had cost the party its Muslim vote bank in the past. “This is not going to help the BJP. It will not improve the party’s fortunes,” said a TDP leader while reacting to Modi’s appointment. Jagan Mohan Reddy, the other big player in the state, has also said in the past that he won’t support the BJP. Though recent news-reports suggest that BJP is trying to get close to Reddy and his YSR Congress.
In the neighbouring state of Karnataka, the BJP was decimated in the recent assembly elections. This after BS Yeddyurappa, the most famous BJP leader in the state, quit the party. The going theory is that is the BJP has to be a serious player in the state that elects 28 MPs to the Lok Sabha,, it will have to get Yeddyurappa back into its fold. The question of course is will Modi attempt to get Yeddyurappa back into the state? And if he does that, how does he plan to handle all the corruption allegations that Yeddyurappa faces?
One of the major issues against the incumbent Congress government is the rampant corruption that it has unleashed. And if BJP decides to associate itself with corrupt politicians like Yeddyurappa and Jagan Mohan Reddy, then it will be putting itself in the same boat as the Congress.
In Tamil Nadu, which elects 39 MPs to the Lok Sabha, the BJP is non existent. But the Chief Minister J Jayalalithaa currently seems to be on amicable terms with Modi. “At a personal level, Modi is a very good friend of mine, I have high regard for him as an able administrator. My good wishes are always with him whether he wins election in Gujarat or achieves an elevation in his own party. I’m happy for him,” she remarked after Modi’s appointment. Whether the two ‘good friends’ translate their friendship into a pre-electoral alliance remains to be seen. Also, the BJP cannot forget that the Atal Bihari Vajpayee led NDA government fell in 1999, due to the mercurial Jayalalithaa, pulling out of the alliance.
The four southern states together elect 129 MPs to the Lok Sabha. The BJP has presence in only one of these states. Hence, its important that the BJP allies with other parties in Tamil Nadu and Andhra Pradesh. But alliances in these states come with there share of problems.
Then come the states of Orissa and West Bengal which elect 63 Lok Sabha MPs between them (Orissa – 21, West Bengal – 42). The BJP was in alliance with Biju Janata Dal (BJD) in Orissa till 2009 for a period of nearly 11 years. But since then Naveen Patnaik, chief minister of Orissa, and the main leader of BJD has been cold towards the BJP.
As he told The Economic Times in an interview today (June 10, 2013) “ I have always maintained that our party will not forge an alliance with either the Congress or the BJP, we will continue to maintain equi-distance from both.”
Mamata Banerjee’s Trinamool Congress, one of the main political parties of West Bengal, has also been in alliance with the BJP in the past. The BJP has been in recent times trying to get close to Mamata. It did not put up a candidate in the recent by-election to the Howrah, Lok Sabha constituency, which Trinamool won. Mamata is also known be as mercurial as Jayalalithaa, and hence can be a tricky alliance partner.
A major reason that Narendra Modi has been appointed the premier leader of the BJP is the fact, that the party expects this move to help it do well in the state of Uttar Pradesh (UP), where it has rapidly lost support over the last 15 years. In the current Lok Sabha the party has only 10 MPs from the state, which elects 80 MPs to the Lok Sabha. In the past it has even had more than fifty Lok Sabha MPs from the state. To tackle this Modi is being projected as an OBC leader in the state by the likes yoga guru Baba Ramdev. Modi’s protege Amit Shah has been appointed as the state party in charge. The resurgence of the BJP is not possible unless the party gets around 30 seats from Uttar Pradesh.
While Modi might draw in the votes in Uttar Pradesh, what does he do about Bihar? Nitish Kumar, the chief minister of Bihar, does not want his party Janata Dal (United) association with a Modi led BJP. So even if Modi gets in the votes in Uttar Pradesh, a breakup of the BJP-Janata Dal(United) alliance in Bihar, might negate the overall effect. And if BJP and Janata Dal (United) fight elections separately in Bihar, Lalu Prasad Yadav’s Rashtriya Janata Dal might benefit from it. In Bihar, the upper castes vote for the BJP, whereas the a spate of lower castes vote for the Janata Dal (United), which is one of the reasons that makes the combination unbeatable. The state elects 40 MPs to the Lok Sabha.
So there are several tricky alliance issues that Modi needs to tackle. And the sooner he tackles them the better it is. Pre-poll alliances are much more beneficial in the first past the post system that India follows. This is the only way for the BJP to ensure that the anti incumbency vote against the Congress led UPA does not split.
Of course, Narendra Modi understands the alliance pressure on the BJP very well. Nilanjan Mukhopadhyay quotes Narendra Modi in the book Narendra Modi – The Man. The Times as saying “When Atalji became prime minister for the first time in 1996 – we got no allies – Akali Dal and Shiv Sena had been with us earlier but not new allies. But in 1998 the situation changed – the parties and their leaders also increased (laughs). Then in 2004 our seats got reduced – the allies got reduced. The issue therefore is that the number of allies depends on the winnability of the BJP”.
And the winnability of the BJP will depend a lot on the alliances it is able to enter before the elections. Given, Modi’s hardline image, it will be difficult for the BJP to get prepoll alliance partners (not that it will be easy to get post poll alliance partners), given that no party wants to drive away the minority vote. As Abheek Barman writes in The Economic Times “A BJP led by Modi will find it much tougher, without minority votes. Modi’s supporters say, so what? Modi will help bring all Hindu votes together. This united Hindu vote is a tired, old RSS assumption.” There is nothing like a Hindu vote. The Hindus largely vote along caste lines.
On its own the BJP has managed a best of 182 seats in the 1998 and 1999 Lok Sabha elections. Since then the number has fallen. After the 2004, Lok Sabha elections the party had 137 members in the Lok Sabha. This fell to 116 members after 2009 Lok Sabha elections.
If the BJP wants to come to power, it will have to best its tally of 182 seats, given that with Modi at the helm it will be more difficult for the party to find post poll alliance partners. As Sebastian PT writes on the Business Today website “There is little doubt that Modi is the most popular leader in the BJP today but he is still a polarising figure in Indian politics-very similar to L.K. Advani in the 1990s. Advani had to step aside for AB Vajpayee, who was seen as having the ability to take everyone along, especially the allies.” And for all we know Narendra Modi might have to step aside for someone else who is more agreeable to the potential allies. So one cannot write off the likes of Sushma Swaraj, Rajnath Singh or for that matter even Arun Jaitley.
So Delhi is still faraway for Narendra Modi. Or as the sufi saint Nizamuddin Aulia once said “Hunoo Dehli Door Ast (Delhi is still far away).
The article originally appeared on www.firstpost.com on June 10, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)