Act now: Arun Jaitley needs to use his lucky streak to push through reforms


Fostering Public Leadership - World Economic Forum - India Economic Summit 2010

Napoleon Bonaparte once said “I know he’s a good general, but is he lucky?”
Luck is an essential part of politics and lucky governments tend to do better than plain and simple skilful governments. As ex cricketer turned writer Ed Smith writes in
Luck—A Fresh Look At Fortune “Academic research supports the idea that voters often can’t tell the difference between lucky governments and skilful ones.” In fact, research carried out by Australian economist Andrew Leigh suggests that “it is more important to be a lucky government than an effective government”. Leigh studied nearly 268 elections between 1978 and 1999.
As Smith writes regarding this study “A government’s average rate of re-election is 57 per cent…Even superb economic management, outpacing world growth by 1 percentage point, only raises the Prime Minister or President’s likelihood of re-election from 57 per cent to 60 per cent. An economically competent government gets an electoral boost of 3 per cent; a lucky one gets a leg up of 7 per cent [i.e.]… the government’s re-election rate jumps to a 64 per cent likelihood.”
Hence, if a government has “luck” going for it, it is important that it does not throw it away and takes some decisions that help it over the long term.
Narendra Modi took over as the Prime Minister of India on May 26, 2014. Things were looking difficult on the economic front and a poor monsoon was being predicted.
The fiscal deficit of the Indian government as on May 31, 2014, stood at Rs 2,40,837 crore. This meant that during the first two months of the financial year (April 2014 to March 2015), the fiscal deficit had already reached 45.6% of the annual target. By June 30, 2014, the fiscal deficit for the first three months of the financial year had reached 56.1% of the annual target. Fiscal deficit is the difference between what a government earns and what it spends.
Typically the income of the government is back loaded, given that its earnings are the highest during the last three months of the financial year. But a large part of the expenditure of the government is more or less spread out through the financial year. Given this, the fiscal deficit typically tends to be high during the first few months of the year.
Nevertheless, even after taking this factor into account, a fiscal deficit of 56.1% of the annual target during the first three months of the year was a very high number. During the last financial year the number had stood at 48.4%. This was largely a reflection of the fiscal mess that the Congress led UPA government had left the country in.
Over and above this, the initial monsoon numbers were not very encouraging. The India Meteorological Department(IMD) in a press release dated July 11, 2014, pointed out that the“rainfall activity was deficient/scanty over the country as a whole” for the period between July 3 and July 9, 2014. This deficiency of rainfall was at 41% of the long period average.” This delay in rainfall had led to a 51% annual decline in the sowing of kharif crops.
These two factors which could have undermined the performance of the new Modi government greatly, have changed for the good in the recent past.
One of the major reasons for a high fiscal deficit has been the fact that oil marketing companies have been incurring huge “under-recoveries” on the sale of diesel, cooking gas and kerosene. The government in turn has had to compensate the OMCs for these “under-recoveries”. This pushed up the government expenditure and hence, the fiscal deficit.
The good news is that oil prices have been falling.
The international crude oil price of Indian Basket of oil as computed by Petroleum Planning and Analysis Cell (PPAC) fell to US$ 99.94 per barrel on 19.08.2014. Two months earlier on June 19, the price of the Indian basket of oil had touched $111.94 per barrel.
This fall in oil prices has ensured that
the under-recoveries of the OMCs for the financial year 2014-15 are projected to be Rs 91,665 crore while the figure was Rs 1,39,869 crore in the 2013-14. If this trend continues the government is likely to incur a lower expenditure for compensating the OMCs for their under-recoveries. And this will also have an impact on the fiscal deficit.
The government has also been lucky on the monsoon front. As the IMD said in a release dated August 15, 2014, “For the country as a whole, cumulative rainfall during this year’s monsoon has so far upto 13 August been 18% below the Long Period Average (LPA).” This is way lower than the deficiency in early July. A bad monsoon could have created several economic challenges for the government. Thankfully, the scenario did not turn out to be as bad it was initially expected to be. Hence, it is safe to conclude that the Modi government has indeed been very lucky on the economic front during its first 90 days.
Given this, the government should use this lucky streak to push in some reform on the pricing of petroleum products. With oil prices falling, this would be a good time to decontrol diesel prices. Over and above this , this would be a good time to limit subsidies on kerosene and cooking gas as well.
As has been suggested here earlier, this might be a good time to start raising cooking gas prices by Rs 10 per cylinder every month, in order to eliminate the subsidy on it, over a period of time.
What might further work for the Modi government is the fact that oil prices might continue to fall in the years to come. As Crisil Research points out in a report titled
Falling crude, LNG, coal prices huge positive for India dated August 2014 “Over the next five years, we expect global oil demand to increase by 4-4.5 m
illion barrels per day (mbpd).
However, crude oil supply is expected to increase by 8-10 mbpd. This, we believe, will bring down prices from current levels.”
This should help the government control its fiscal deficit. If the government is able to lower its fiscal deficit, it will have to borrow less and that will eventually lead to lower interest rates. If the government borrows less, there will be more money to lend to others. At lower interest rates consumers are more likely to borrow and spend. This will have a positive impact on economic growth.
The Modi government has luck going for it right now, but this may or may not last. Hence, it is important that it makes the best of it, and pushes in some decisions which will work well for the economy in the long run.

The article originally appeared on on August 22, 2014 
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

No "acche din" for govt finances any time soon

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010Vivek Kaul 

So what do the finance minister Arun Jaitley and the Hindi film industry have in common? They both love the number “Rs 100 crore”. The Hindi film industry cannot stop talking about the films that have done a business of Rs 100 crore or more. Jaitley, in his maiden budget speech, used the Rs 100 crore number 29 times, while making allocations to various government schemes.
This has led a lot of experts to comment that Jaitley has spread himself too thin. Whether that turns out to be the case, only time will tell. Nevertheless, in the budget speech, Jaitley, like finance ministers before him, did not talk about the single biggest expenditure of the government.
The single biggest expenditure of the government of India is debt servicing i.e. the interest that it pays on its debt and the money that it spends in repaying it. Governments all over the world, including the Indian government, spend much more than they earn. This difference is referred to as the fiscal deficit and is financed through borrowing. The money is borrowed for a certain period. During the period a certain amount of interest needs to be paid on it. And at the end of the period, the borrowed money needs to be repaid.
Over the years, the government has been spending more than it has earning. Given this, the fiscal deficit has shot up. In 2007-2008, the fiscal deficit of the Indian government had stood at Rs 1,26,912 crore or 2.6% of the GDP. This had shot up to Rs 5,15,990 crore or 5.7% of the GDP, by 2011-2012. The fiscal deficit projected for 2014-2015 stands at Rs 5,31,177 crore or 4.1% of the GDP.
This increase in fiscal deficit has been financed by a greater amount of borrowing. A greater borrowing has meant that the cost of debt servicing for the government has gone up over the years. In 2009-2010, the total debt servicing cost of the Indian government had stood Rs 2,94,857 crore. The fiscal deficit during the course of that year had stood at Rs 4,18,842 crore. Hence, the ratio of the debt servicing cost to the fiscal deficit worked out to 0.7.
By 2013-2014, the total debt servicing cost had shot up to Rs 5,43,267 crore. As the amount of money borrowed went up, so did the interest that needed to paid on it. And, so did the repayments. The fiscal deficit for the year stood at Rs 5,24,539 crore. Hence, the ratio of debt servicing cost to the fiscal deficit shot up to 1.04.
For the current financial year, the total debt servicing cost has been estimated to be at Rs 6,43,301 crore. Interestingly, in the interim budget presented by P Chidambaram in February earlier this year, the number had stood at Rs 6,74,184 crore. How has the number come down by more than Rs 30,000 crore, that Mr Jaitley did not explain. The fiscal deficit for the year has been projected at Rs 5,31,177 crore. Hence, the ratio of the total debt servicing cost to the fiscal deficit is now at 1.21.
What does this ratio tell us? It tells us that the entire borrowing(and a part of the income) of the government of India is being used to repay past borrowing and to pay interest on it. In simple everyday terms it means that I am using one credit card to pay off what is due on another credit card.
In such a scenario, it becomes very difficult for the government to spend money on other important areas. It also explains to a large extent why Jaitley made so many allocations of just Rs 100 crore. If he had the money, he would have probably preferred a higher amount of allocation. Of course, Mr Jaitley cannot be blamed for this mess which he has inherited from the Congress led United Progressive Alliance (UPA) government.
So what is the way out of this financial hole? The revenue receipts of the government(i.e. the money that it earns through tax and non tax revenue) for the year 2007-2008 had stood at 10.2% of the GDP. For the year, 2014-2015, the revenue receipts are at 9.2% of the GDP.
What this tells us clearly is that the revenue receipts of the government have come down and need to go up. How can that be done? The Modi government has been gung ho about getting the black money of Indians stashed abroad back to India. But what about all the black money that is there in the country? Wouldn’t that be easier to recover?
While the intention to get back all this black money from abroad is certainly noble, how practical is it? Also, if the idea is to recover black money then why discriminate between those who have managed to transfer the money abroad and those who haven’t.
The Modi government can borrow an idea or two from what happened in Greece. In order to recover black money, the Greek government used Google Earth to track those who have swimming pools and then cross indexed their address with the amount of tax they are paying. Ideas along similar lines which use information technology extensively in order to identify people who are not paying the correct amount of income tax, need to be come up with.
In the budget speech made in February 2013, the then finance minister P Chidambaram had estimated that India had only 42,800 people with a taxable income of Rs 1 crore or more. What this clearly tells us is that a lot of people are not paying income tax.
In a country where 27,000 luxury cars are sold every year, the number of individuals with a taxable income of Rs 1 crore has to be more than 42,800. These individuals, who include property dealers, doctors, chartered accountants etc., need to be made to pay their fair share of income tax.
Of course, any such move will not immediately lead to results. The way to do is to execute a few pilot projects in different parts of the country and identify the big defaulters and get them to pay the income tax. This should be extensively publicized as well, so as t ensure that other similar people start paying the right amount of income tax.

The piece originally appeared in The Asian Age/Deccan Chronicle dated July 11, 2014 under a different headline.

(Vivek Kaul is the author of Easy Money: Evolution of the Global Financial System to the Great Bubble Burst. He can be reached at [email protected]

Budget 2014: When it comes to the fiscal deficit, Jaitley has done a Chidambaram

 Fostering Public Leadership - World Economic Forum - India Economic Summit 2010

Vivek Kaul

Alfred Hitchcock, the British director, who taught Hollywood how to make thrillers, once famously said: “The length of a film should be directly related to the endurance of the human bladder.” On a lighter note, this rule should apply to the speeches that politicians make, as well.
Arun Jaitley in his maiden budget speech as the finance minister of India, junked Hitchcock’s bladder test and went on and on and on. Early on in his budget speech Jaitley said : “My predecessor has set up a very difficult task of reducing fiscal deficit to 4.1 per cent of the GDP in the current year. Considering that we had two years of low GDP growth, an almost static industrial growth, a moderate increase in indirect taxes, a large subsidy burden and not so encouraging tax buoyancy, the target of 4.1 per cent fiscal deficit is indeed daunting. Difficult, as it may appear, I have decided to accept this target as a challenge. One fails only when one stops trying.” Fiscal deficit is the difference between what a government earns and what it spends.
So, the question is how does Jaitley plan to meet the fiscal deficit target of Rs 5,31,177 crore or 4.1% of the GDP? Jaitley has assumed that tax receipts will go up by 16.9% to Rs 9,77,258 crore during the course of this financial year (April 2014 to March 2015). In the economic survey released yesterday, the economic growth for the current financial year has been projected to be at 5.4-5.9%. Governments projections typically tend out to be more optimistic than they actually turn out to be.
In this scenario how feasible is an assumption of 16.9% growth in tax receipts? Jaitley’s predecessor P Chidambaram had assumed a growth of 19.2% in tax receipts for the last financial year. The actual growth turned out to be much lower at 12.7%. In a scenario of low growth and high inflation an assumption of 16.9% growth in tax receipts is highly optimistic and is unlikely to be achieved.
Chidambaram had gone about achieving a fiscal deficit of 4.6% of the GDP for the last financial year(April 2013 to March 2014) by largely doing two things. Subsidies on petroleum, food and fertilizer which should have been paid up by the government during the course of the last financial year, were postponed to this financial year. Estimates suggest that this amount was greater than Rs 1,00,000 crore.
Jaitley doesn’t seem to have taken this into account while working out the numbers. The total cost of subsidies for this financial year has been budgeted to be at Rs 2,55,707.62 crore. This is more or less similar to the last year’s number. Hence, unless subsidies are brought down majorly, which remains a politically unpopular move and inflationary in the short-term, this amount is unlikely to be sufficient to meet the subsidy commitments of the government. And if subsidises are not brought down, Jaitley will either have to let the fiscal deficit go up or like Chidambaram push their accounting to the next financial year.
The second thing Chidambaram did in order to achieve a fiscal deficit of 4.6% of GDP was to cut down on plan expenditure. The government expenditure is categorised into two kinds—planned and non planned. Planned expenditure is essentially money that goes towards creation of productive assets through schemes and programmes sponsored by the central government. Non-plan expenditure is an outcome of planned expenditure. For example, the government constructs a highway using money categorised as a planned expenditure. But the money that goes towards the maintenance of that highway is non-planned expenditure. Interest payments on debt, pensions, salaries, subsidies and maintenance expenditure are all non-plan expenditure.
As is obvious a lot of non-plan expenditure is largely regular expenditure that cannot be done away with. The government needs to keep paying salaries, pensions and interest on debt, on time. These expenses cannot be postponed. The only thing it can do is to postpone making the subsidy payments. Hence, when expenditure needs to be cut, it is the asset creating planned expenditure which typically faces the axe and that is not good for the overall economy. If one looks at the numbers Jaitley has assumed that is the direction we seem to be headed.
The planned expenditure target of the government during the last financial year was at Rs 5,55,322 crore. The actual planned expenditure came in at Rs 4,75,532 crore, which was close to Rs 80,000 crore or 14.4% lower. This is how the fiscal deficit of 4.6% of GDP was achieved.
Jaitley has set the total planned expenditure for the year at Rs 5,75,000 crore. It is highly likely that during the last few months of this financial year (i.e. the period between January and March 2015) Jaitley might like Chidambaram have to put a freeze on this expenditure, if he hopes to achieve the fiscal deficit target that he has set. And this can’t possibly be good for the Indian economy.
Another area where Jaitley could have been aggressive is the money that can be raised through the disinvestment of public sector companies. During the course of this financial year the government hopes to earn Rs 58,425 crore through disinvestment. Chidambaram had set a target for Rs 54,000 crore but managed to earn only around Rs 19,000 crore. The advantage that Jaitley has is that the stock market has been rallying for a while. Given this, the government could have been aggressive and set a disinvestment target of close to Rs 1,00,000 crore.
What makes the fiscal deficit target of 4.1% of GDP further unrealistic is the legacy that the Congress led United Progressive Alliance has left for the Narendra Modi led National Democratic Alliance. The fiscal deficit number for the first two months of this financial year(April-May 2014) does not look good at all. Numbers released by the Controller General of Accounts suggest that for April-May 2014, the fiscal deficit of the government has already touched Rs 2.41 lakh crore.
This works out at around 45% of the fiscal deficit target of Rs 5,31,177 crore that Jaitley has set. Hence, he has only around Rs 2,90,000 crore to play around with between June 2014 to March 2015. This, of course is not Jaitley’s fault.
To conclude, this was Jaitley’s chance of presenting the true financial situation of the Indian government. He seems to have lost that chance by projecting a higher revenue than the government is likely to earn and a lower expenditure than the government is likely to spend.
The article also appeared on on July 10, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Continuing a legacy? When Jaitley does a Chidambaram on food inflation


Fostering Public Leadership - World Economic Forum - India Economic Summit 2010
Complex problems do not have straightforward answers. But politicians need to come up with simple answers in order to explain things, especially if they happen to be lawyers.
In order to tackle the high food inflation finance minister Arun Jaitley has asked states to “crack down on hoarders”. The food inflation for the month of May 2014 was at 9.5%(as measured by the wholesale price index and 9.4% (as measured by the consumer price index). Over the last ten years food inflation has averaged at 8.1% and has even gone above 10% in recent times.
Jaitley’s response to tackle food inflation was similar to what P Chidambaram had said in December 2013. “There is also a need to deal wisely with harvesting and marketing and deal strictly with hoarding and profiteering,” the former finance minister had said.
So is India’s food inflation problem only because of hoarding? As mentioned at the beginning, complex problems do not have simple answers. And India’s food inflation is a really complex problem.
One of the biggest hoarders of food is the government of India. The Food Corporation of India (FCI) indicates its grain stock at the beginning of every month. As on June 1, 2014, the food grain stock stood at 74.8 million tonnes. This primarily included rice and wheat.
This stock is much more than what is required by the government to run its various subsidy programmes and also to maintain an emergency stock and strategic reserve requirements. In fact, the Commission for Agricultural Costs and Prices(CACP), a part of the ministry of agriculture, estimated in May 2013, that anywhere between 41-47 million tonnes, would be a comfortable level of buffer stocks.
In fact, the level of the stocks with FCI has gone up dramatically since May 2004, when the Congress led United Progressive Alliance (UPA) first came to power. At the beginning of June 2004, the stock of food grain had stood at 32.3 million tonnes. It has more than doubled since then.
With more and more food grains landing up in the godowns of the government it is not surprising that price of food grains has risen over the last few years. The price of rice has risen by 12.75% over the last one year. The rise in the price of wheat has been rather subdued at 3.64%. But around the same time last year, the price of rice had risen 12.37% over a one year period.
In order to control grain prices, in the short run the government needs to sell some of its hoard in the open market. And that is exactly what it plans to do. It plans to sell 50 lakh tonnes of rice in the open market at a price of Rs 8.3 per kg. More importantly the government needs to stop hoarding rice and wheat, and not buy more than what it requires.
Other than the price of rice, the price of milk, fruits and egg, fish and meat has also risen at rapid rates of 9.57%, 19.4% and 12.47%, respectively. As far as hoarding is concerned India does not have the supply chain infrastructure required to hoard these food products. In this case, the inflation is clearly a case of the demand outstripping supply.
In a recent report titled
What a Waste Crisil Insight points out that “inflation in egg, fish and meat has consistently [been] at 10-15% since 2009. The story is similar for milk and milk products where inflation peaked above 15% in 2012.” Hence, inflation in these products is not a recent phenomenon and more than that it has nothing to do with hoarding.
Crisil Insight points out that “loose fiscal policy, rising demand for high-value food items and substantial increase in wages — especially rural wages, as a spillover [of] the rural employment guarantee scheme – have translated into higher demand for proteins. This has raised the prices of items such as milk and milk products, egg, fish and meat as supply falls short of demand. The production of milk and eggs has risen only 3-4% a year, compounded annually, during 2009-10 to 2012-13, while inflation in this category has risen 14-15%.” Hence, the only way to control inflation in this area is to encourage more production of milk, eggs, fish and meat, and that of course, needs a lot of effort and cannot happen overnight.
So that leaves us with vegetables. Vegetable prices on the whole have fallen by 0.97% over the last one year. But this aggregate hides the fact that potato prices have risen by 31.44% in the last one year. In this case, the hoarding argument can apply given that hoarding potato is far more easier than hoarding other vegetables or fruits or meat for that matter.
Interestingly, onion prices haven’t gone up in the last one year. They have fallen by 2.83% during the period. At the same time last year, onion prices had gone up by 94.28% over a period of one year. In order to stop anything along similar lines from happening again, the government has imposed a minimum export price of $300 per tonne for onions. In fact, the ministry of commerce has been asked to come up with a similar measure for potatoes as well.
Hopefully, all these measures should have some impact on the burgeoning food prices. To conclude, it is important to understand that food inflation is not just because of traders hoarding food products. Prices of different food products have risen due to different reasons over the last ten years. And these reasons need to be specifically addressed, if food prices are to be controlled.
The article was originally published on on June 19,2014

(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 on June 10, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)